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RAND CAPITAL
CORPORATION
2008 Annual Report
April 3, 2009
Dear Shareholders,
I am pleased to share the results of 2008 with you.
During the year:
• We grew our Net Asset Value by 2% to $3.54 at year end.
• We invested $1.0 million in three new companies and an additional
$600,000 in three existing portfolio companies.
We now have investments in 19 companies representing $28.1 million in
investment value.
It has been an extremely difficult economic environment for Rand and its
portfolio companies. As we forecast our liquidity needs for operating
expenses and investment in new companies or current companies, there
may be some scenarios where we need additional capital. We have asked you
to approve a motion that will allow Rand to sell shares below our Net Asset
Value under certain circumstances. At this point, we do not have a firm plan
to sell shares and have not had any discussions with any prospective buyers.
However, we felt it was prudent to have the flexibility to sell these shares
under the appropriate circumstances.
Thank you for your continued support.
Sincerely,
Reginald B. Newman II Allen F. Grum
Chairman President
Portfolio of Investments December 31, 2008
Adampluseve, Inc. (dba Adam)
New York, NY. Luxury sports wear designer for men and GridApp Systems, Inc.
women. www.shopadam.com New York, NY. Provider of database automation software that
helps businesses gain control of their heterogeneous database
Type of Investment
applications through a centralized software console.
Warrants to purchase 1,715 Series A convertible preferred
shares. www.gridapp.com
Type of Investment
Year Acquired: . . .2006 Cost: . . . . . . .$68,000
$660,000 term note at 4% simple interest, 8% deferred interest
Percent Equity: . . . .2% Value . . . . . .$133,341
(PIK) due January 4, 2012. $6,667 convertible note at 4% due
November 28, 2018.
APF Group, Inc. p Year Acquired: . . .2008 Cost: . . . . . .$666,667
Yonkers, NY. Manufacturer of museum quality picture frames Percent Equity: . . . .3% Value: . . . . . .$666,667
and framed mirrors for museums, art galleries, retail frame
shops, upscale designers and prominent collectors. G-TEC Natural Gas Systems p
www.apfgroup.com Buffalo, NY. Manufactures and distributes systems that allow
Type of Investment natural gas to be used as an alternative fuel to gases.
$587,786 consolidated senior subordinated note at 8% due www.gas-tec.com
June 30, 2011. $13,514 senior subordinated note at 14% due Type of Investment
June 30, 2011. Warrants to purchase 10.2941 shares of 28.925 Class A membership interest. 8% cumulative
common stock. dividend.
Year Acquired: . . .2004 Cost: . . . . . .$607,335 Year Acquired: . . .1999 Cost: . . . . . .$400,000
Percent Equity: . . . .6% Value: . . . . . .$300,000 Percent Equity: . . .29% Value: . . . . . .$198,000
Innov-X Systems, Inc. p
Associates Interactive, LLC. p Woburn, MA. Manufactures portable x-ray fluorescence
Buffalo, NY. Provider of training content and certifications (XRF) analyzers used in metals/alloy analysis.
used to train retail sales associates. www.innovxsys.com
www.associatesinteractive.com Type of Investment
Type of Investment 2,642 Series A convertible preferred stock. Warrants for 21,596
$247,813 promissory note at 9% due December 19, 2012. common shares. 8% cumulative dividend.
Investor units totaling 21.88% of company. Interest receivable $162,411
Year Acquired: . . .2007 Cost: . . . . . .$250,000 Year Acquired: . . .2004 Cost: . . . . .$1,000,000
Percent Equity: . . .22% Value: . . . . . .$250,000 Percent Equity: . . . .9% Value: . . . . .$8,761,700
Carolina Skiff LLC p Kionix, Inc.
Waycross, GA. Manufacturer of fresh water, ocean fishing and Ithaca, NY. Develops innovative MEMS based inertial sensors
pleasure boats. www.carolinaskiff.com used in consumer electronics, automation and healthcare
sectors. www.kionix.com
Type of Investment
$985,000 Class A preferred membership interest at 7.5%. Type of Investment
Redeemable January 31, 2010. 5% common membership 2,862,091 shares Series A preferred stock. 744,526 shares
interest. Interest receivable $638,693 Series B preferred stock. 696,296 shares Series C preferred
stock.
Year Acquired: . . .2004 Cost: . . . . .$1,000,000
Percent Equity: . . . .5% Value: . . . . .$1,000,000 Year Acquired: . . .2002 Cost: . . . . .$1,506,043
Percent Equity: . . . .2% Value: . . . . .$2,000,000
EmergingMed.com, Inc. Mezmeriz, Inc.
New York, NY. Cancer clinical trial matching and referral Ithaca, NY. Developer of micro mirror technology that
service. www.emergingmed.com replaces silicon with carbon fibers in microelectronic
Type of Investment mechanical systems (MEMS), enabling efficient, wide-
$500,000 senior subordinated note at 10% due December 19, angle, Pico projectors to be embedded in mobile devices.
2010. Warrants to purchase 5.5% of common stock. www.mezmeriz.com
Interest receivable $151,667 Type of Investment
Year Acquired: . . .2005 Cost: . . . . . .$500,000 $100,000 convertible note at 9% percent due January 9, 2010.
Percent Equity: . . . .7% Value: . . . . . .$500,000 Year Acquired: . . .2008 Cost: . . . . . .$100,000
Percent Equity: . . . .0% Value: . . . . . .$100,000
Gemcor II, LLC p
West Seneca, NY. Designs and sells automatic riveting Niagara Dispensing Technologies, Inc. p
machines used in the assembly of aircraft components. Amherst, NY. Beverage dispensing technology development
www.gemcor.com and products manufacturer, specializing in rapid pour beer
Type of Investment dispensing systems for high volume stadium and concession
$250,000 subordinated note at 8% due June 28, 2010 with operations. www.exactpour.com
warrant to purchase 6.25 membership units. 25 membership Type of Investment
units. 463,691 Series A preferred stock. 720,833 Series B preferred
Year Acquired: . . .2004 Cost: . . . . . .$603,200 stock.
Percent Equity: . . .31% Value: . . . . .$5,803,201 Year Acquired: . . .2006 Cost: . . . . .$1,281,783
Percent Equity: . . .14% Value: . . . . .$1,170,783
Golden Goal LLC
Fort Ann, NY. Youth soccer and lacrosse tournament park. Photonic Products Group Inc. (OTC: PHPG.OB)
www.goldengoalpark.com Northvale, NJ. Develops and manufactures products for laser
photonics industry. www.inrad.com.
Type of Investment Type of Investment
66,000 shares common stock.
191,811 Class C units at 4%.
Year Acquired: . . .2007 Cost: . . . . . .$637,414 Year Acquired: . . .2000 Cost: . . . . . .$165,000
Percent Equity: . . . .6% Value: . . . . . .$400,000 Percent Equity: . . . 1% Value: . . . . . .$112,000
RAMSCO p
REXFORD ALBANY MUNICIPAL SUPPLY COMPANY, INC. Albany, NY Distributor of water, sanitary, storm sewer and
specialty construction materials to the contractor, highway and
municipal construction markets. www.ramsco.com
Type of Investment
$300,000 promissory notes at 9% due October 20, 2010.
Warrants for 5.99% of common stock.
Year Acquired: . . .2002 Cost: . . . . . .$300,000
Percent Equity: . . . .6% Value: . . . . . .$300,000
Somerset Gas Transmission Company, LLC
Columbus, OH. Natural gas transportation company.
www.somersetgas.com
Type of Investment
26.5337 units.
Year Acquired: . . . . . .2002 Cost: . . . . . .$719,097
Percent Equity: . . . . . . 2% Value: . . . . . .$786,748
SOMS Technologies, LLC p
Valhalla, NY. Produces and markets the microGreen Extended
Performance Oil Filter. www.microgreenfilter.com
Type of Investment
$250,000 secured convertible note at 10% due December 2,
2010.
Year Acquired: . . .2008 Cost: . . . . . .$250,000
Percent Equity: . . . .0% Value: . . . . . .$250,000
Synacor, Inc.
Buffalo, NY. Develops provisioning platforms for aggregation
and delivery of content and services across multiple digital
devices. www.synacor.com
Type of Investment
234,558 Series A preferred shares. 600,000 Series B preferred
shares. 240,378 Series C preferred shares. 897,438 common
shares.
Year Acquired: . . .2002 Cost: . . . . .$1,349,479
Percent Equity: . . . .4% Value: . . . . .$4,168,001
Ultra — Scan Corporation p
Amherst, NY. Biometrics application developer of ultrasonic
fingerprint technology. www.ultra-scan.com
Type of Investment
536,596 common shares. 202,388 Series A-1 preferred shares.
Year Acquired: . . .1992 Cost: . . . . . .$938,164
Percent Equity: . . . .4% Value: . . . . .$1,203,000
Other Investments
(Cost and Value) . . . . $ 2,044,269 $ 22,841
Total portfolio
investments
(Cost and Value) . . . . $14,386,451 $28,126,282
p Indicates those companies which Rand has a seat on the
Board of Directors
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number: 814-00235
Rand Capital Corporation
(Exact Name of Registrant as specified in its Charter)
New York 16-0961359
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
2200 Rand Building, Buffalo, NY 14203
(Address of Principal executive offices) (Zip Code)
(716) 853-0802
(Registrant’s Telephone No. Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 under the Securities
Act. Yes n No ¥
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes n No ¥
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ¥ No n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ¥
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer n Accelerated filer n Non-accelerated filer ¥ Smaller reporting company n
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes n No ¥
The aggregate market value of the registrant’s outstanding common stock held by non-affiliates of the registrant as of June 30, 2008
was approximately $13,325,039 based upon the last sale price as quoted by NASDAQ Capital Market on such date.
As of March 6, 2009 there were 5,718,934 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation’s definitive proxy statement for the Annual Meeting of Stockholders to be held on April 30, 2009 are
incorporated by reference into certain sections of Part III herein.
RAND CAPITAL CORPORATION
TABLE OF CONTENTS FOR FORM 10-K
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 1
Item 1B. Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 6
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 6
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . .... 6
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . 11
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . 47
Item 9A(T). Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . 48
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
PART IV
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
PART I
Item 1. Business
Corporation Formation
Rand Capital Corporation (“Rand”) was incorporated under the laws of New York on February 24, 1969.
Beginning in 1971, Rand operated as a publicly traded, closed-end, diversified management company that was
registered under Section 8 of the Investment Company Act of 1940 (the “1940 Act”). On August 16, 2001,
Rand elected to be treated as a business development company (“BDC”) under the 1940 Act. In 2002, Rand formed
a wholly-owned subsidiary for the purpose of operating it as a small business investment company (“SBIC”)
licensed by the U.S. Small Business Investment Administration (“SBA”). The subsidiary received an SBA license to
operate as an SBIC in August 2002. The subsidiary, which had been organized as a Delaware limited partnership,
was converted into a New York corporation on December 31, 2008, at which time its operations as a licensed small
business investment company was continued by a newly formed corporation under the name of Rand Capital SBIC,
Inc. (“Rand SBIC”). The following discussion will describe the operations of Rand, its wholly-owned subsidiary
Rand SBIC, and the predecessor wholly-owned limited partnership (collectively, the “Corporation”).
Throughout the Corporation’s history, its principal business has been to make venture capital investments in
small to medium sized companies that are engaged in the exploitation of new or unique products or services with a
sustainable competitive advantage, typically in New York and its surrounding states. The Corporation’s principal
investment objective is to achieve long-term capital appreciation while maintaining a current cash flow from its
debenture instruments. The Corporation invests in a mixture of debenture and equity instruments. The debt
securities most often have an equity piece attached to the debenture in the form of stock, warrants or options to
acquire stock or the right to convert the debt securities into stock. Rand SBIC was the primary investment vehicle in
2007 and 2008 and it is anticipated that will continue to be the case in 2009. Consistent with its status as a BDC and
the purposes of the regulatory framework for BDC’s under the 1940 Act, the Corporation provides managerial
assistance, often in the form of a board of director’s seat, to the portfolio companies in which it invests.
The Corporation operates as an internally managed investment company whereby its officers and employees
conduct its operations under the general supervision of its Board of Directors. It has not elected to qualify to be
taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code.
The Corporation is listed on the NASDAQ Small Capital Market under the symbol “Rand”.
The Corporation’s website is www.randcapital.com. The Corporation’s annual report on Form 10-K and its
Proxy Statement are available at the following web address: http://materials.proxyvote.com/752185. In addition,
the annual report on Form 10-K, the quarterly reports on Form 10-Q, current reports on Form 8-K, charters for the
Corporation’s committees and other reports filed with the Securities and Exchange Commission (“SEC”) are
available through the Corporation’s website.
Regulation as a Business Development Company
Although the 1940 Act exempts a BDC from registration under that Act, it contains significant limitations on
the operations of BDCs. Among other things, the 1940 Act contains prohibitions and restrictions relating to
transactions between a BDC and its affiliates, principal underwriters and affiliates of its affiliates or underwriters,
and it requires that a majority of the BDC’s directors be persons other than “interested persons,” as defined under the
1940 Act. The 1940 Act also prohibits a BDC from changing the nature of its business so as to cease to be, or to
withdraw its election as, a BDC unless so authorized by a vote of the holders of a majority of its outstanding voting
securities. BDC’s are not required to maintain fundamental investment policies relating to diversification and
concentration of investments within a single industry. More specifically, in order to qualify as a BDC, a company
must:
(1) be a domestic company;
(2) have registered a class of its equity securities or have filed a registration statement with the
SEC pursuant to Section 12 of the Securities Exchange Act of 1934;
1
(3) operate for the purpose of investing in the securities of certain types of portfolio companies, namely
immature or emerging companies and businesses suffering or just recovering from financial distress;
(4) extend significant managerial assistance to such portfolio companies; and
(5) have a majority of “disinterested” directors (as defined in the 1940 Act). Generally, a BDC must be
primarily engaged in the business of furnishing capital and providing managerial expertise to companies
that do not have ready access to capital through conventional financial channels. Such portfolio
companies are termed “eligible portfolio companies.”
An eligible portfolio company is, generally, a private domestic operating company, or a public domestic
operating company whose securities are not listed on a national securities exchange. In addition, any small business
investment company that is licensed by the SBA and that is a wholly owned subsidiary of a BDC is an eligible
portfolio company.
The 1940 Act prohibits or restricts companies subject to the 1940 Act from investing in certain types of
companies, such as brokerage firms, insurance companies, investment banking firms and investment companies.
Moreover, the 1940 Act limits the type of assets that BDCs may acquire to “qualifying assets” and certain assets
necessary for its operations (such as office furniture, equipment and facilities) if, at the time of acquisition, less than
70% of the value of the BDC’s assets consist of qualifying assets. Qualifying assets include: (1) securities of
companies that were eligible portfolio companies at the time the BDC acquired their securities; (2) securities of
bankrupt or insolvent companies that were eligible at the time of the BDC’s initial acquisition of their securities but
are no longer eligible, provided that the BDC has maintained a substantial portion of its initial investment in those
companies; (3) securities received in exchange for or distributed in or with respect to any of the foregoing; and
(4) cash items, government securities and high-quality short-term debt. The 1940 Act also places restrictions on the
nature of the transactions in which, and the persons from whom, securities can be purchased in order for the
securities to be considered qualifying assets. These restrictions include limiting purchases to transactions not
involving a public offering and acquiring securities from the portfolio company or its officers, directors, or
affiliates.
A BDC is permitted to invest in the securities of public companies and other investments that are not qualifying
assets, but those kinds of investments may not exceed 30% of the BDC’s total asset value at the time of the
investment.
A BDC must make significant managerial assistance available to the issuers of eligible portfolio securities in
which it invests. Making available significant managerial assistance means, among other things, any arrangement
whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted does provide,
significant guidance and counsel concerning the management, operations or business objectives and policies of a
portfolio company.
SBIC Subsidiary
Since 2002, Rand has operated a wholly-owned SBIC subsidiary in order to have access to the various forms of
leverage provided by the SBA to SBICs. Rand operates Rand SBIC, and Rand formerly operated the limited
partnership SBIC predecessor of Rand SBIC, for the same investment purposes and with investments in the same
kinds of securities as Rand. The operations of the SBIC predecessor were, and the operations of Rand SBIC are,
consolidated with those of Rand for both financial reporting and tax purposes.
On May 28, 2002, Rand and the predecessor SBIC subsidiary filed an Exemption Application with the SEC
seeking an order for a number of operating exemptions that the SEC has commonly granted from certain restrictions
under the 1940 Act that would otherwise limit the operations of the wholly-owned subsidiary. After the filing of the
Exemption Application, the Corporation had extended discussions with the staff of the Division of Investment
Management of the SEC concerning the application. The principal substantive issue in these discussions was the
structure of the predecessor of Rand SBIC as a limited partnership.
Rand formed the predecessor SBIC in 2002 as a limited partnership because that was the organizational form
that the SBA strongly encouraged for all new entities seeking licenses as SBICs. Rand organized the SBIC
2
subsidiary in a manner that was consistent with the SBA’s model limited partnership forms for licensed SBICs. In
that structure, the general partner of Rand SBIC was a limited liability company whose managers were the principal
executive officers of Rand.
Under the rules and interpretations of the SEC applicable to BDCs (which the subsidiary SBIC intended to
become), if a BDC is structured in limited partnership form, then it must have general partners who serve as a board
of directors, or a general partner with very limited authority and a separate board of directors, all of the persons who
serve on the board of directors must be natural persons, and a majority of the directors must not be “interested
persons” of the BDC. Since the managers of the limited liability company general partner of the SBIC subsidiary
were the principal executive officers of Rand, and since both the limited liability company general partner and the
subsidiary SBIC were wholly-owned by Rand, Rand believed that the board of directors of Rand was the functional
equivalent of a board of directors for both the general partner limited liability company and for the SBIC limited
partnership. Nevertheless, the staff of the Division of Investment Management of the SEC maintained the view that
if the limited partnership subsidiary was to be operated as a limited partnership BDC in compliance with the
1940 Act, then the organizational documents of the limited partnership would have to specifically provide that it
would have a board of directors consisting of natural persons, a majority of whom would not be “interested
persons.”
After lengthy discussions between Rand and the SBA, in December 2008 the SBA indicated that if Rand SBIC
were reorganized as a corporation whose directors were the directors of Rand, it would license the corporation as an
SBIC that would continue the operations of the limited partnership predecessor. Accordingly, Rand merged the
limited partnership subsidiary and its limited liability company general partner into Rand SBIC, effective on
December 31, 2008. As a result of the merger, Rand SBIC is a wholly-owned corporate subsidiary of Rand whose
board of directors is comprised of directors of Rand, a majority of whom are not “interested persons” of Rand or
Rand SBIC.
On February 26, 2009, the Corporation filed an Exemption Application with the SEC seeking an order under
Sections 6(c), 12(d)(1)(J), 57(c), and 57(i) of, and Rule 17d-1 under, the 1940 Act for exemptions from the
application of Sections 12(d)(1), 18(a), 21(b), 57(a)(1), (2), (3), and (4), and 61(a) of the 1940 Act to certain aspects
of its operations. The application also seeks an order under Section 12(h) of the Securities Exchange Act of
1934 Act (the “Exchange Act”) for an exemption from separate reporting requirements for Rand SBIC under
Section 13(a) of the Exchange Act. In general, the Corporation’s application seeks exemptions that would permit:
• Rand and Rand SBIC to engage in certain related party transactions that the Corporation would otherwise be
permitted to engage in as a BDC if its component parts were organized as a single corporation;
• Rand, as a BDC, and Rand SBIC, as its BDC/SBIC subsidiary, to meet asset coverage requirements for
senior securities on a consolidated basis; and
• Rand SBIC, as a BDC/SBIC subsidiary of Rand as a BDC, to file Exchange Act reports on a consolidated
basis as part of Rand’s Exchange Act reports.
The SEC has recently granted exemptions in response to applications that reflected similar issues and factual
circumstances, and Rand believes that it will receive the exemptions it has requested for the operation of Rand SBIC
as a BDC subsidiary of Rand.
Regulation of the SBIC Subsidiary
SBA Lending Restrictions
The SBA licenses SBICs as part of a program designed to stimulate the flow of private debt and/or equity
capital to small businesses. SBICs use funds borrowed from the SBA, together with their own capital, to provide
loans to, and make equity investments in, concerns that (a) do not have a net worth in excess of $18 million and do
not have average net income after U.S. federal income taxes for the two years preceding any date of determination
of more than $6 million, or (b) meet size standards set by the SBA that are measured by either annual receipts or
number of employees, depending on the industry in which the concerns are primarily engaged. The types and dollar
amounts of the loans and other investments an SBIC that is a BDC may make are limited by the 1940 Act, the SBA
3
Act and SBA regulations. The SBA is authorized to examine the operations of SBICs, and an SBIC’s ability to
obtain funds from the SBA is also governed by SBA regulations.
In addition, at the end of each fiscal year, an SBIC must have at least 20% (in total dollars) invested in “Smaller
Enterprises”. The SBA defines “Smaller Enterprises” as concerns that (a) do not have a net worth in excess of
$6 million and have average net income after U.S. federal income taxes for the preceding two years no greater than
$2 million, or (b) meet size standards set by the SBA that are measured by either annual receipts or number of
employees, depending on the industry in which the concerns are primarily engaged. The Corporation has
maintained compliance with this requirement since inception of the SBIC subsidiary.
SBICs may invest directly in the equity of their portfolio companies, but they may not become a general
partner of a non-incorporated entity or otherwise become jointly or severally liable for the general obligations of a
non-incorporated entity. An SBIC may acquire options or warrants in its portfolio companies, and the options or
warrants may have redemption provisions, subject to certain restrictions.
SBA Leverage
The SBA raises capital to enable it to provide funds to SBICs by guaranteeing certificates or bonds that are
pooled and sold to purchasers of the government guaranteed securities. The amount of funds that the SBA may lend
to SBICs is determined by annual Congressional appropriations.
In order to obtain SBA borrowings, also known as leverage, an SBIC must demonstrate its need to the SBA. To
demonstrate need, an SBIC must invest 50% of its Leverageable Capital (defined as Regulatory Capital less
unfunded commitments and federal funds) and any outstanding SBA leverage. Other requirements include
compliance with SBA regulations, adequacy of capital, and meeting liquidity standards. An SBIC’s license entitles
an SBIC to apply for SBA leverage, but does not assure that it will be available, or if available, that it will be
available at the level of the relevant matching ratio. Availability depends on the SBIC’s continued regulatory
compliance and sufficient SBA funds being available when the SBIC applies to draw down SBA leverage. Under the
provisions of the SBIC regulations, the Corporation may apply for the SBA’s conditional commitment to reserve a
specific amount of leverage for future use. The Corporation may then apply to draw down leverage against the
commitment. All SBICs must obtain a leverage commitment in order to draw leverage from the SBA. Commitments
expire on September 30 of the fourth full fiscal year following issuance and require the payment of a fee equal to
1 percent of the total commitment at the time of issuance. An additional fee equal to 2 percent of the amount drawn
is deducted at the time of each draw.
The Corporation paid $100,000 to the SBA to reserve $10,000,000 of its approved debenture leverage as a
partial prepayment of the SBA’s nonrefundable 3% leverage fee. As of December 31, 2008, Rand SBIC had drawn
$8,100,000 in leverage from the SBA. The remaining leverage commitment expired on September 30, 2008 and
$1,900,000 of approved leverage expired. The remaining unamortized prepaid leverage fee of $19,000 was
expensed during 2008.
SBA debentures are issued with 10-year maturities. Interest only is payable semi-annually until maturity.
Ten-year SBA debentures may be prepaid with a penalty during the first 5 years, and then are pre-payable without
penalty. Rand initially capitalized Rand SBIC with $5 million in Regulatory Capital. The Corporation expects to use
Rand SBIC as its primary investment vehicle.
Employees
As of December 31, 2008, the Corporation had four employees.
Item 1A. Risk Factors
The Corporation is Subject to Risks Created by the Valuation of its Portfolio Investments
There is typically no public market for equity securities of the small privately held companies in which the
Corporation invests. As a result, the valuations of the equity securities in the Corporation’s portfolio are stated at fair
value as determined by the good faith estimate of the Corporation’s Board of Directors. In the absence of a readily
4
ascertainable market value, the estimated value of the Corporation’s portfolio of securities may differ significantly,
favorably or unfavorably, from the values that would be placed on the portfolio if a ready market for the equity
securities existed. Any changes in estimated value are recorded in the statement of operations as “Net increase in
unrealized appreciation.”
The Corporation’s Portfolio Investments are Illiquid
Most of the investments of the Corporation are or will be either equity securities acquired directly from small
companies or subordinated debt securities. The Corporation’s portfolio of equity and debt securities is, and will
usually be, subject to restrictions on resale or otherwise has no established trading market. The illiquidity of most of
the Corporation’s portfolio may adversely affect the ability of the Corporation to dispose of the securities at times
when it may be advantageous for the Corporation to liquidate investments.
Investing in Private Companies involves a High Degree of Risk
The Corporation typically invests a substantial portion of its assets in small and medium sized private
companies. These private businesses may be thinly capitalized, unproven companies with risky technologies, may
lack management depth, and may not have attained profitability. Because of the speculative nature and the lack of a
public market for these investments, there is significantly greater risk of loss than is the case with traditional
investment securities. The Corporation expects that some of its venture capital investments will be a complete loss
or will be unprofitable and that some will appear to be likely to become successful but never realize their potential.
The Corporation has been risk seeking rather than risk averse in its approach to venture capital and other
investments.
Even if the Corporation’s portfolio companies are able to develop commercially viable products, the market
for new products and services is highly competitive and rapidly changing. Commercial success is difficult to predict
and the marketing efforts of the portfolio companies may not be successful.
Investing in the Corporation’s Shares May be Inappropriate for the Investor’s Risk Tolerance
The Corporation’s investments, in accordance with its investment objective and principal strategies, result in a
greater than average amount of risk and volatility and may well result in loss of principal. Its investments in
portfolio companies are highly speculative and aggressive and, therefore, an investment in its shares may not be
suitable for investors for whom such risk is inappropriate. Neither the Corporation’s investments nor an investment
in the Corporation is intended to constitute a balanced investment program.
The Corporation is Subject to Risks Created by its Regulated Environment
The Corporation is regulated by the SBA and the SEC. Changes in the laws or regulations that govern SBICs
and BDCs could significantly affect the Corporation’s business. Regulations and laws may be changed periodically,
and the interpretations of the relevant regulations and laws are also subject to change. Any change in the regulations
and laws governing the Corporation’s business could have a material impact on its financial condition or its results
of operations. Moreover, the laws and regulations that govern BDCs and SBICs may place conflicting demands on
the manner in which the Corporation operates, and the resolution of those conflicts may restrict or otherwise
adversely affect the operations of the Corporation.
The Corporation is Subject to Risks Created by Borrowing Funds from the SBA
The Corporation’s Leverageable Capital may include large amounts of debt securities issued through the SBA,
and all of the debentures will have fixed interest rates. Until and unless the Corporation is able to invest substantially
all of the proceeds from debentures at annualized interest or other rates of return that substantially exceed
annualized interest rates that Rand SBIC must pay the SBA, the Corporation’s operating results may be adversely
affected which may, in turn, depress the market price of the Corporation’s common stock.
5
The Corporation is Dependent Upon Key Management Personnel for Future Success
The Corporation is dependent on the diligence and skill of its two senior officers, Allen F. Grum and Daniel P.
Penberthy, for the selection, structuring, closing and monitoring of its investments. The future success of the
Corporation depends to a significant extent on the continued service and coordination of its senior management
team. The departure of either of its executive officers could materially adversely affect its ability to implement its
business strategy. The Corporation does not maintain key man life insurance on any of its officers or employees.
The Corporation Operates in a Competitive Market for Investment Opportunities
The Corporation faces competition in its investing activities from many entities including other SBICs, private
venture capital funds, investment affiliates of large companies, wealthy individuals and other domestic or foreign
investors. The competition is not limited to entities that operate in the same geographical area as the Corporation. As
a regulated BDC, the Corporation is required to disclose quarterly and annually the name and business description
of portfolio companies and the value of its portfolio securities. Most of its competitors are not subject to this
disclosure requirement. The Corporation’s obligation to disclose this information could hinder its ability to invest in
certain portfolio companies. Additionally, other regulations, current and future, may make the Corporation less
attractive as a potential investor to a given portfolio company than a private venture capital fund.
The Corporation May be Negatively Affected by Adverse Changes in the General Economic Conditions of
the Domestic and Global Markets
The continued economic crisis and related turmoil in the global financial markets has had and may continue to
have an impact on the Corporation’s portfolio companies and the overall financial condition of the Corporation. If
the current market conditions continue to deteriorate, the Corporation may suffer further losses on its investment
portfolio, which could have a material adverse effect on Net Asset Value.
Fluctuations of Quarterly Results
The Corporation’s quarterly operating results could fluctuate significantly as a result of a number of factors.
These factors include, among others, variations in and the timing of the recognition of realized and unrealized gains
or losses, the degree to which portfolio companies encounter competition in their markets, and general economic
conditions. As a result of these factors, results for any one quarter should not be relied upon as being indicative of
performance in future quarters.
Item 1B. Unresolved Staff Comments
Not Applicable
Item 2. Properties
The Corporation maintains its offices at 2200 Rand Building, Buffalo, New York 14203, where it leases
approximately 1,300 square feet of office space pursuant to a lease agreement that expires December 31, 2010. The
Corporation believes that its leased facilities are adequate to support its current staff and expected future needs.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
6
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
The Corporation’s common stock, par value $0.10 per share (“Common Stock”), is traded on the NASDAQ
Small Cap Market (“NASDAQ”) under the symbol “RAND.” The following table sets forth, for the periods
indicated, the range of high and low closing sales prices per share as reported by NASDAQ:
2008 Quarter ending: High Low
March 31st . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. $4.78 $3.55
June 30th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. $4.29 $3.25
September 30th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. $4.00 $3.25
December 31st . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. $4.00 $3.11
2007 Quarter ending: High Low
March 31st . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. $5.04 $3.26
June 30th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. $3.94 $3.26
September 30th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. $4.62 $3.35
December 31st . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. $4.72 $3.50
The Corporation did not sell any securities during the period covered by this report that were not registered
under the Securities Act. The Corporation has not paid any cash dividends in its most recent two fiscal years, and it
has no intention of paying cash dividends in the coming fiscal year.
Profit Sharing and Stock Option Plans
In July 2001, the stockholders of the Corporation authorized the establishment of an Employee Stock Option
Plan (the “Plan”). The Plan provides for the award of options to purchase up to 200,000 common shares to eligible
employees. In 2002, the Corporation placed the Plan on inactive status as it developed a new profit sharing plan for
the Corporation’s employees in connection with the establishment of its SBIC subsidiary. As of December 31, 2008
no stock options had been awarded under the Plan. Because Section 57(n) of the 1940 Act prohibits maintenance of
a profit sharing plan for the officers and employees of a BDC where any option, warrant or right is outstanding under
an executive compensation plan, no options will be granted under the Plan while any profit sharing plan is in effect
with respect to the Corporation.
In 2002, the Corporation established a non-equity incentive Profit Sharing Plan for its executive officers in
accordance with Section 57(n) of the Investment Company Act of 1940 (the “1940 Act”). The profit sharing plan
provides for incentive compensation to the named executive officers based on a stated percentage of net realized
capital gains and after reduction for realized and unrealized losses on the Rand SBIC investment portfolio. Any
profit sharing paid cannot exceed 20% of the Corporation’s net income, as defined. There have been no accruals for,
or contributions to, the Profit Sharing Plan since its inception in 2002.
Shareholders of Record
On March 6, 2009 the Corporation had a total of 820 shareholders, which included 97 record holders of its
common stock, and an estimated 723 shareholders with shares beneficially owned in nominee name or under
clearinghouse positions of brokerage firms or banks.
Stock Repurchase Plan
The Board of Directors has authorized the repurchase of up to 285,947 shares of the Corporation’s outstanding
Common Stock on the open market at prices that are no greater than current net asset value through October 23,
2009. During 2003 and 2002 the Corporation purchased 44,100 shares of its Common Stock for a total cost of
$47,206. No additional shares have been repurchased since 2003.
7
Company Performance Graph
The following graph shows a five-year comparison of cumulative total shareholder returns for the Company’s
Common Stock, the NASDAQ Market Index, and a New Peer Group and the Old Peer Group, assuming a base index
of $100 at the end of 2003. The cumulative total return for each annual period within the five years presented is
measured by dividing (1) the sum of (A) the cumulative amount of dividends for the measurement period, assuming
dividend investment, and (B) the difference between share prices at the end and at the beginning of the measurement
period by (2) the share price at the beginning of the measurement period.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG RAND CAPITAL CORP.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
300
RAND CAPITAL CORP.
250 OLD PEER GROUP INDEX
NASDAQ MARKET INDEX
DOLLARS
200 NEW PEER GROUP INDEX
150
100
50
0
2003 2004 2005 2006 2007 2008
ASSUMES $100 INVESTED ON DEC. 31, 2003
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2008
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
FISCAL YEAR ENDING
COMPANY/INDEX/MARKET 12/31/2003 12/31/2004 12/30/2005 12/29/2006 12/31/2007 12/31/2008
Rand Capital Corporation 100.00 107.59 92.41 241.38 248.14 241.38
Old Peer Group Index 100.00 101.62 95.36 132.43 87.47 18.67
New Peer Group Index 100.00 108.41 110.79 122.16 134.29 79.25
NASDAQ Market Index 100.00 101.62 95.36 130.52 91.89 34.03
The Old Peer Group was made up of the following securities:
Ameritrans Capital Corp (NasdaqCM:AMTC)
Brantley Capital Corp (OTC:BBDC.pk)
Capital Southwest Corp (NasdaqGM:CSWC)
8
Equus Total Return Inc (NYSE:EQS)
Gladstone Investment CP (NasdaqGS:GAIN)
Harris & Harris Group (NasdaqGM:TINY)
Macc Private Equities Inc (NasdaqCM:MACC)
MCG Capital Corporation (NasdaqGS:MCGC)
MVC Capital Inc (NYSE:MVC)
The New Peer Group is made up of the following securities:
Ameritrans Capital Corp (NasdaqCM:AMTC)
Equus Total Return Inc (NYSE:EQS)
Gladstone Investment CP (NasdaqGS:GAIN)
Harris & Harris Group (NasdaqGM:TINY)
Hercules Tech Growth Cap (NasdaqGS: HTGC)
Main Street Capital Corp (NasdaqGS: MAIN)
MCG Capital Corporation (NasdaqGS:MCGC)
Patriot Capital Funding (NasdaqGS: PCAP)
Triangle Capital Corp (NasdaqGM: TCAP)
The New Peer Group was selected in good faith by the Corporation and contains nine business development
companies or other funds believed by the Corporation to be of similar size and have similar investment objectives to
those of the Corporation.
The performance graph information provided above will not be deemed to be “soliciting material” or “filed”
with the SEC or subject to Regulations 14A or 14C, or to the liabilities of section 18 of the Securities Exchange Act,
unless in the future the Corporation specifically requests that the information be treated as soliciting material or
specifically incorporates it by reference into any filing under the Securities Act or the Securities Exchange Act.
Item 6. Selected Financial Data
The following table provides selected consolidated financial data of the Corporation for the periods indicated.
You should read the selected financial data set forth below in conjunction with Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and with our consolidated financial statements and
related notes appearing elsewhere in this report.
Balance Sheet Data as of December 31:
2008 2007 2006 2005 2004
Total assets . . . . . . . . . $32,228,797 $32,722,151 $29,463,944 $16,063,605 $12,743,109
Total liabilities . . . . . . $12,001,831 $12,904,328 $12,681,539 $ 7,447,671 $ 3,716,055
Net assets . . . . . . . . . . $20,226,966 $19,817,823 $16,782,405 $ 8,615,934 $ 9,027,054
Net asset value per
outstanding share . . . $ 3.54 $ 3.47 $ 2.93 $ 1.51 $ 1.58
Common stock shares
outstanding . . . . . . . 5,718,934 5,718,934 5,718,934 5,718,934 5,718,934
9
Operating Data for the year ended December 31:
2008 2007 2006 2005 2004
Investment income . . . . . . . . $1,757,003 $2,302,870 $ 1,326,962 $ 736,573 $ 757,704
Total expenses . . . . . . . . . . . $1,721,555 $1,650,947 $ 1,519,184 $1,265,846 $ 900,812
Net investment gain (loss) . . . $ 135,689 $ 425,406 $(1,264,802) $ (175,179) $(112,384)
Net realized (loss) gain on
sales and dispositions of
investments . . . . . . . . . . . . — $ (68,748) $ 3,456,441 $ (382,353) $ 26,727
Net increase (decrease) in
unrealized appreciation . . . $ 273,454 $2,362,507 $ 5,974,832 $ 146,412 $(125,777)
Net increase (decrease) in net
assets from operations . . . . $ 409,143 $2,719,165 $ 8,166,471 $ (411,120) $(211,434)
10
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in
conjunction with our financial statements and related notes included elsewhere in this report.
Forward Looking Statements
Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this document that do not relate to present or historical conditions are “forward-
looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, and in
Section 21F of the Securities Exchange Act of 1934. Additional oral or written forward-looking statements may
be made by the Corporation from time to time, and those statements may be included in documents that are filed
with the Securities and Exchange Commission. Such forward-looking statements involve risks and uncertainties
that could cause results or outcomes to differ materially from those expressed in the forward-looking statements.
Forward-looking statements may include, without limitation, statements relating to the Corporation’s plans,
strategies, objectives, expectations and intentions and are intended to be made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Words such as “believes,” “forecasts,”
“intends,” “possible,” “expects,” “estimates,” “anticipates,” or “plans” and similar expressions are intended to
identify forward-looking statements. Among the important factors on which such statements are based are
assumptions concerning the state of the national economy and the local markets in which the Corporation’s
portfolio companies operate, the state of the securities markets in which the securities of the Corporation’s
portfolio company trade or could be traded, liquidity within the national financial markets, and inflation.
Forward-looking statements are also subject to the risks and uncertainties described under the caption “Risk
Factors” contained in Part I, Item 1A, which is incorporated herein by reference.
There may be other factors that we have not identified that affect the likelihood that the forward-looking
statements may prove to be accurate. Further, any forward-looking statement speaks only as of the date it is made
and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or
unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to
develop as we expect, and we cannot predict all of them.
Business Overview
Rand Capital Corporation (“Rand”) was incorporated under the law of New York on February 24, 1969.
Beginning in 1971, Rand operated as a publicly traded, closed-end, diversified management company that was
registered under Section 8 of the Investment Company Act of 1940 (the “1940 Act”). On August 16, 2001, Rand
elected to be treated as a business development company (“BDC”) under the 1940 Act. In 2002, Rand formed a
wholly-owned subsidiary for the purpose of operating it as a small business investment company (“SBIC”) licensed
by the U.S. Small Business Investment Administration (“SBA”). The subsidiary received an SBA license to operate
as an SBIC in August 2002. The subsidiary, which had been organized as a Delaware limited partnership, was
converted into a New York corporation on December 31, 2008, at which time its operations as a licensed small
business investment company were continued by a newly formed corporation under the name of Rand Capital
SBIC, Inc. (“Rand SBIC”). The following discussion will describe the operations of Rand, its wholly-owned
subsidiary Rand SBIC, and the predecessor wholly-owned limited partnership (collectively, the “Corporation”).
The Corporation anticipates that most, if not all, of its investments in the next year will be originated through
the SBIC subsidiary.
The Corporation’s primary business is making investments in companies, usually in the form of subordinated
debt, membership interests, or preferred and common stock. The investment focus is usually on small and medium-
sized companies that meet certain criteria, including:
1) a qualified and experienced management team
2) a new or unique product or service with a sustainable competitive advantage
11
3) a potential for growth in revenue and cash flow
4) a potential to realize appreciation in an equity position, if any.
The Corporation makes investments in portfolio companies that typically range from $500,000 to $1,000,000
and it invest either directly in the equity of a company through equity shares or in a debt instrument. The debt
instruments generally have a maturity of not more than five years and usually have detachable equity warrants.
Interest is either paid currently or deferred.
The Corporation’s management team identifies investment opportunities. Throughout the Corporation’s history
it has established a large network of investment referral relationships. Investment proposals may, however, come to the
Corporation from many other sources, and may include unsolicited proposals from the public and referrals from
banks, lawyers, financial accountants and other members of the financial community. The Corporation believes that its
reputation in the community and experience provide a competitive advantage in originating qualified new
investments.
In a typical private financing, the management team of the Corporation will review, analyze, and confirm,
through due diligence, the business plan and operations of the potential portfolio company. Additionally, the
Corporation will become familiar with the portfolio company’s industry and competitive landscape and may
conduct additional reference checks with customers and suppliers of the portfolio company.
Following an initial investment in a portfolio company, the Corporation may be requested to make follow-on
investments in the company. Follow-on investments may be made to take advantage of warrants or other preferential
rights granted to the Corporation or otherwise to increase or maintain the Corporation’s position in a promising
portfolio company. The Corporation may also be called upon to provide an additional investment to a portfolio
company in order for that company to fully implement its business plans, to develop a new line of business or to
recover from unexpected business problems. Follow-on investments in a portfolio company are evaluated
individually and may be subject to regulatory restrictions.
The Corporation will exit its investments generally through the maturation of the debt security or when a
liquidity event takes place, such as the sale, recapitalization, or initial public offering of a portfolio company. The
method and timing of the disposition of the Corporation’s portfolio investments can be critical to the realization of
maximum total return. The Corporation generally expects to dispose of its equity securities through the private sales
of securities to other investors or through an outright sale of the company or a merger. The Corporation anticipates
its debentures will be repaid with interest and hopes to realize further appreciation from the warrants or other equity
type instruments it receives in connection with the origination of the debenture. The Corporation anticipates
generating cash for new investments and operating expenses through SBA leverage draw downs, and interest and
principal payments from its portfolio concerns.
2008 Highlights and Outlook
The Corporation’s net asset value increased $0.07, or 2% during 2008, closing the year at $3.54 per share up
from $3.47 at December 31, 2007. At December 31, 2008, the Corporation’s total investment portfolio was valued at
$28.1 million, which exceeds its cost basis of $14.4 million, reflecting $13.7 million in net unrealized appreciation.
Although the Corporation’s stock traded at a premium to its net asset value during 2007, during 2008 its
common stock traded in a range that was above and below the current net asset value per share. The year closed with
the stock trading at $3.50 which represented a slight discount to the net asset value of $3.54.
During 2008 the Corporation recognized $1,757,003 in total investment income, a decrease of ($545,867) from
$2,302,870 of investment income in 2007. The 23.7% decrease is attributable to the decrease in dividends and
interest from portfolio companies. Dividends from portfolio companies that are limited liability companies can
fluctuate based on the portfolio companies’ profitability and the timing of distributions. In addition, lower cash
balances in the current year caused the interest income to decrease.
Also during 2008 certain portfolio companies repaid some or all of their outstanding debenture instruments,
including: Contract Staffing, Gemcor and New Monarch Machine Tool, Inc. These repayments may impact future
earnings by reducing interest income in 2009 and future periods.
12
The cash balance at December 31, 2008 was $2.8 million which was approximately $1.6 million lower than at
the end of 2007. The Corporation was unable to draw the remaining $1.9 million of outstanding leverage available
from the Small Business Administration (SBA), due to Rand SBIC’s excess cash position, and the leverage expired
in September 2008. Given that the Corporation has used up much of its available SBA leverage, in order for the
Corporation to raise substantial amounts of capital in the short term, it will need to rely on Rand’s ability to sell
additional shares of its common stock through public or private offerings. Although Rand currently has no specific
plans concerning the timing or amount of any common stock offering it might make, it is considering the possibility
of making an offering at some time in the next year in order to have more capital available with which to pursue
favorable investment opportunities. See “Liquidity and Capital Resources,” below.
While the business of some of our portfolio companies is strengthening, in terms of employee growth, increase
in revenue, and strengthening net income position, it remains difficult to forecast when future exits will happen, or if
the portfolio companies will have sufficient capital to remain viable while their respective markets mature.
Critical Accounting Policies
The Corporation prepares its financial statements in accordance with United States generally accepted
accounting principles (GAAP), which requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities. For a summary of all significant accounting policies, including critical accounting
policies, see Note 1 to the consolidated financial statements in Item 8.
The increasing complexity of the business environment and applicable authoritative accounting guidance
require the Corporation to closely monitor its accounting policies and procedures. The Corporation has identified
two critical accounting policies that require significant judgment. The following summary of critical accounting
policies is intended to enhance your ability to assess the Corporation’s financial condition and results of operations
and the potential volatility due to changes in estimates.
Valuation of Investments
The most important estimate inherent in the preparation of the Corporation’s consolidated financial statements
is the valuation of its investments and the resulting unrealized appreciation or depreciation.
Investments are valued at fair value as determined in good faith by the management of the Corporation and
submitted to the Board of Directors for approval. There is no single standard for determining fair value in good faith.
As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each
portfolio investment while employing a consistently applied valuation process for investments. The Corporation
analyzes and values each investment on a quarterly basis, and records unrealized depreciation for an investment that
it believes has become impaired, including where collection of a loan or realization of the recorded value of an
equity security is doubtful. Conversely, the Corporation will record unrealized appreciation if it believes that the
underlying portfolio company has appreciated in value and, therefore, its equity security has also appreciated in
value. These estimated fair values may differ from the values that would have been used had a ready market for the
investments existed and these differences could be material if our assumptions and judgments differ from results of
actual liquidation events.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (“SFAS”) 157, Fair Value Measurements. This statement defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This
statement was effective for financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those years. On January 1, 2008, the Corporation adopted SFAS 157.
SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, used in the Corporation’s
valuation at the measurement date.
13
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or
similar assets or liabilities in markets that are not active, or other observable inputs other than quoted
prices.
Level 3: Unobservable and significant inputs to determining the fair value.
Most of the Corporation’s investments are classified in Level 3 due to their privately held restricted nature.
In the valuation process, the Corporation uses financial information received monthly, quarterly, and annually
from its portfolio companies, which includes both audited and unaudited financial statements, annual projections
and budgets prepared by the portfolio company and other financial and non-financial business information supplied
by the portfolio companies’ management. This information is used to determine financial condition, performance,
and valuation of the portfolio investments. The valuation may be reduced if a company’s performance and potential
have significantly deteriorated. If the factors which led to the reduction in valuation are overcome, the valuation
may be restored.
Another key factor used in valuing equity investments is recent arms-length equity transactions with unrelated
new investors entered into by the portfolio company that the Corporation utilizes to form a basis for its underlying
value. Many times the terms of these equity transactions may not be identical to the equity transactions between the
portfolio company and the Corporation, and the impact of the discrepancy in transaction terms on the market value
of the portfolio company may be difficult or impossible to quantify.
Any changes in estimated fair value are recorded in our statement of operations as “Net increase in unrealized
appreciation.”
Revenue Recognition (Interest Income)
Interest income generally is recognized on the accrual basis except where the investment is in default or
otherwise presumed to be in doubt. In such cases, interest is recognized at the time of receipt. A reserve for possible
losses on interest receivable is maintained when appropriate. Certain investments of the Corporation are structured
to provide a deferred interest period when interest is not currently due.
Rand SBIC’s interest accrual is also regulated by the SBA’s “Accounting Standards and Financial Reporting
Requirements for Small Business Investment Companies”. Under these rules interest income cannot be recognized
if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be in
doubt when there is substantial doubt about a portfolio company’s ability to continue as a going concern or the loan
is in default more than 120 days. Management also utilizes other qualitative and quantitative measures to determine
the value of a portfolio investment and the collectability of any accrued interest.
Recent Accounting Pronouncements
In September 2006, the FASB issued Statement No. 157 (SFAS 157), Fair Value Measurements. This statement
defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value
measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. The Corporation adopted the enhanced disclosure provisions of SFAS 157 during 2008.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if
currently adopted, would have a material effect on the accompanying consolidated financial statements.
14
Financial Condition
Overview:
(Decrease) % (Decrease)
12/31/08 12/31/07 Increase Increase
Total assets . . . . . . . . . . . . . . . . . . . . . . . $32,228,797 $32,722,151 $(493,354) (1.5)%
Total liabilities . . . . . . . . . . . . . . . . . . . . 12,001,831 12,904,328 (902,497) (7.0)%
Net assets . . . . . . . . . . . . . . . . . . . . . . . . $20,226,966 $19,817,823 $ 409,143 2.1%
Net asset value per share (NAV) was $3.54 per share at December 31, 2008 versus $3.47 per share at
December 31, 2007.
The Corporation did not draw down on any of the SBA leverage during the year ended December 31, 2008 and
the total owed to the SBA at December 31, 2008 was $8,100,000. These debentures bear a fixed interest rate and an
annual fee, averaging 5.9%, payable semi-annually. The debenture principal is repayable in full 10 years from
issuance beginning in 2014.
Cash and cash equivalents approximated 14% of net assets at December 31, 2008 compared to 22% at
December 31, 2007.
The effect of investment income, realized losses and the change in unrealized appreciation on investments
resulted in a net decrease in the net deferred tax liability from $3,955,000 at December 31, 2007 to $3,490,000 at
December 31, 2008.
Composition of the Corporation’s Portfolio
The Corporation’s financial condition is dependent on the success of its portfolio holdings. It has invested a
substantial portion of its assets in small to medium-sized companies. The following summarizes the Corporation’s
investment portfolio at the year-ends indicated.
12/31/08 12/31/07 Increase % Increase
Investments, at cost . . . . . . . . . . . . . . . . . $14,386,451 $13,390,644 $ 995,807 7.4%
Unrealized appreciation, net . . . . . . . . . . . 13,739,831 13,137,846 601,985 4.6%
Investments, at fair value . . . . . . . . . . . . . $28,126,282 $26,528,490 $1,597,792 6.0%
The Corporation’s total investments at fair value, as estimated by the Board of Directors, approximated 139%
of net assets at December 31, 2008 and 134% of net assets at December 31, 2007.
The change in investments, at cost, is comprised of the following:
New Investments: Amount
GridApp Systems, Inc. (GridApp) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 666,667
Niagara Dispensing Technologies, Inc. (Niagara Dispensing). . . . . . . . . . . . . . . . . . . . . 374,990
SOMS Technologies, LLC (SOMS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
Associates Interactive, LLC (Associates) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Mezmeriz, Inc. (Mezmeriz) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Rocket Broadband Networks, Inc. (Rocket Broadband) . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Total of investments made during the year ended December 31, 2008 . . . . . . . . . . . $1,626,657
Other Changes to investments:
APF Group, Inc. (APF) interest conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,832
Niagara Dispensing interest conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,783
Total of new investments and changes to investments during the year ended
December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,709,272
15
Sales/Investment Repayments Amount
New Monarch Machine Tool, Inc. (Monarch) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (520,147)
Contract Staffing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (131,066)
Gemcor II, LLC (Gemcor). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62,252)
Total of sales and investment repayments during the year ended December 31,
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (713,465)
Total change in investment balance, at cost, during the year ended December 31,
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 995,807
The Corporation’s top five portfolio companies represented 68% of total assets at December 31, 2008:
Fair Value at % of Total Assets
December 31, at December 31,
Company Industry 2008 2008
Innov-X Systems, Inc.
(Innov-X) . . . . . . . . . . . . . . . Manufacturing — Metals $8,761,700 27%
Testing Equipment
Gemcor . . . . . . . . . . . . . . . . . . Manufacturing — Aerospace $5,803,201 18%
Machinery
Synacor Inc. (Synacor) . . . . . . . Software $4,168,001 13%
Kionix, Inc . (Kionix) . . . . . . . . Manufacturing — Silicon Chips $2,000,000 6%
Ultra-Scan Corporation (Ultra-
Scan) . . . . . . . . . . . . . . . . . . Electronics — $1,203,000 4%
Hardware/Software
The Corporation’s top five portfolio companies represented 61% of total assets at December 31, 2007:
Fair Value at % of Total Assets
December 31, at December 31,
Company Industry 2007 2007
Innov-X . . . . . . . . . . . . . . . . . . Manufacturing — Metals $8,761,700 27%
Testing Equipment
Synacor . . . . . . . . . . . . . . . . . . Software $4,168,001 13%
Gemcor . . . . . . . . . . . . . . . . . . Manufacturing — Aerospace $4,165,451 13%
Machinery
Carolina Skiff LLC (Carolina
Skiff) . . . . . . . . . . . . . . . . . . Manufacturing — Boating $1,227,000 4%
Kionix . . . . . . . . . . . . . . . . . . . Manufacturing — Silicon Chips $1,221,568 4%
Below is the Geographic breakdown of the Corporation’s investments, at fair value, to the net asset value as of
December 31, 2008 and 2007:
% of Net Asset Value at % of Net Asset Value at
Geographic Region December 31, 2008 December 31, 2007
USA – East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95% 94%
USA – South . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% 6%
100% 100%
16
As of December 31, 2008 and 2007, the Corporation’s investment portfolio consisted of the following
investments:
Percentage of Percentage of
Cost Total Portfolio Fair Value Total Portfolio
December 31, 2008:
Subordinated Debt and Promissory
Notes . . . . . . . . . . . . . . . . . . . . . . . $ 3,240,266 23% $ 2,111,013 8%
Convertible Debt . . . . . . . . . . . . . . . . 356,667 2% 356,667 1%
Equity and Partnership Interests . . . . . 10,721,519 75% 25,525,261 91%
Equity Warrants . . . . . . . . . . . . . . . . . 68,000 — 133,341 —
Total . . . . . . . . . . . . . . . . . . . . . . . . $14,386,452 100% $28,126,282 100%
December 31, 2007:
Subordinated Debt and Promissory
Notes . . . . . . . . . . . . . . . . . . . . . . . $ 3,992,927 30% $ 3,071,009 11%
Convertible Debt . . . . . . . . . . . . . . . . 50,000 — 50,000 —
Equity and Partnership Interests . . . . . 9,279,717 69% 23,274,140 88%
Equity Warrants . . . . . . . . . . . . . . . . . 68,000 1% 133,341 1%
Total . . . . . . . . . . . . . . . . . . . . . . . . $13,390,644 100% $26,528,490 100%
Results of Operations
Investment Income
The Corporation’s investment objective is to achieve long-term capital appreciation on its equity investments
while maintaining a current cash flow from its debenture and pass through equity instruments. Therefore, the
Corporation invests in a mixture of debenture and equity instruments, which will provide a current return on a
portion of the investment portfolio. The equity features contained in our investment portfolio are structured to
realize capital appreciation over the long-term and may not generate current income in the form of dividends or
interest. In addition, the Corporation earns interest income from investing its idle funds in money market
instruments held at high grade financial institutions.
Comparison of the years ended December 31, 2008 and 2007
December 31, December 31,
2008 2007 (Decrease) % (Decrease)
Interest from portfolio companies. . . . . . . . $ 608,180 $ 618,430 $ (10,250) (1.7)%
Interest from other investments . . . . . . . . . 90,660 173,664 (83,004) (47.8)%
Dividend and other investment income . . . . 1,027,377 1,469,864 (442,487) (30.1)%
Other income . . . . . . . . . . . . . . . . . . . . . . 30,786 40,912 (10,126) (24.8)%
Total investment income . . . . . . . . . . . . . . $1,757,003 $2,302,870 $(545,867) (23.7)%
Interest from portfolio companies — The portfolio interest income decrease is a result of several factors. Two
portfolio companies (Contract Staffing and Monarch) repaid their debt instruments during the last twelve months
and one portfolio company (Niagara Dispensing) converted its debenture instrument into equity during 2008.
During the year ended December 31, 2007 the Corporation recognized Original Issue Discount (OID) income on its
Adampluseve, Inc (Adampluseve) investment in the amount of $62,333. Adampluseve paid off its debenture
instrument early and therefore the remaining unamortized OID was accreted into income during 2007. OID is
created when the Corporation invests in a debenture instrument that has a warrant attached to the instrument. This
requires an allocation of a portion of the investment cost to the warrant and reduces the debt instrument by an equal
amount in the form of a note discount or OID. The note is then reported net of the discount and the discount is
accreted into income over the life of the debenture instrument
17
These aforementioned decreases in the current year portfolio interest income are offset by several revenue
items that increased portfolio income. The Corporation began to recognize dividends on the Series A Convertible
Preferred Stock of Innov-X during the year ended December 31, 2008. These dividends resulted from the
re-negotiation of the preferred stock terms and provided for an 8% cumulative deferred return while the investment
is outstanding. The amount recognized during the year ended December 31, 2008 was $162,413. This dividend is
classified as portfolio interest income and this revenue classification is consistent with other interest bearing
instruments in the portfolio. Interest of $43,067 was recognized on the escrow from Innov-X during 2008. The
Innov-X escrow of $711,249 and the earned interest of $43,067 were received in the second quarter of 2008.
After reviewing the portfolio companies’ performance and the circumstances surrounding the investments, the
Corporation has ceased accruing interest income on the following investment instruments:
Interest Investment Year that Interest
Company Rate Cost Accrual Ceased
G-Tec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 8% $400,000 2004
Rocket Broadband . . . . . . . . . . . . . . . . . . . . . . .......... 11.25% 35,000 2008
UStec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 5% 100,000 2006
WineIsIt.com (Wineisit). . . . . . . . . . . . . . . . . . .......... 10% 801,918 2005
Interest from other investments — The decrease in interest income is due to lower cash balances coupled with
lower yields on these cash balances.
Dividend and other investment income — Dividend income is comprised of distributions from Limited
Liability Companies (LLC’s) in which the Corporation has invested. The Corporation’s investment agreements with
certain LLC companies require the entities to distribute funds to the Corporation for payment of income taxes on its
allocable share of the entities’ profits. These dividends will fluctuate based upon the profitability of the entities and
the timing of the distributions.
Dividend income for the year ended December 31, 2008 consisted of distributions from Gemcor for $974,287,
Carolina Skiff for $19,838 and Somerset Gas Transmission Company (Somerset) for $33,252.
Dividend income for the year ended December 31, 2007 consisted of distributions from Gemcor for
$1,372,407, Carolina Skiff for $40,464, Somerset for $36,788, Topps Meat Company LLC (Topps) for
$19,524, and Vanguard Modular Building Systems (Vanguard) for $681.
Other income — Other income consists of the revenue associated with the amortization of financing fees
charged to the portfolio companies upon successful closing of Rand SBIC financing. The SBA regulations limit the
amount of fees that can be charged to a portfolio company, and the Corporation typically charges 1% to 3% to the
portfolio concerns. These fees are amortized ratably over the life of the instrument associated with the fees. The
unamortized fees are carried on the balance sheet under “Deferred revenue”. In addition, other income includes fees
charged by the Corporation to its portfolio companies for attendance at the portfolio companies’ board meetings.
Other income decreased due to the fact that the Corporation has not charged any of its new portfolio companies
financing fees in the last two years. The annualized financing fee income based on the existing portfolio will be
approximately $6,700 in 2009 and $2,700 in 2010. In addition board attendance income amounted to $14,000 for
the year ended December 31, 2008 and $13,000 for year ended December 31, 2007.
Comparison of the years ended December 31, 2007 and 2006
December 31, December 31, (Decrease) % (Decrease)
2007 2006 Increase Increase
Interest from portfolio companies . . . . . . . $ 618,430 $ 757,824 $ (139,394) (18.4)%
Interest from other investments . . . . . . . . . 173,664 53,104 120,560 227.0%
Dividend and other investment income . . . 1,469,864 432,296 1,037,568 240.0%
Other income . . . . . . . . . . . . . . . . . . . . . . 40,912 83,738 (42,826) (51.1)%
Total investment income. . . . . . . . . . . . . . $2,302,870 $1,326,962 $ 975,908 73.5%
18
Interest from portfolio companies — The portfolio interest income decrease can be attributed to the fact that
five debenture instruments — Concentrix Corporation (Concentrix), Innov-X, Ramsco, UStec, Inc. (UStec) and
Synacor — that contributed to portfolio interest income for the year ended December 31, 2006 were either repaid or
converted into equity instruments during the last six months of 2006 and throughout 2007, thereby reducing
portfolio interest income earned during the year ended December 31, 2007.
This decrease is offset by the recognition of the Adampluseve OID income. This portfolio company,
Adampluseve, paid off its debenture instrument early and therefore the remaining $62,333 in unamortized OID
was accreted into income during the year ended December 31, 2007.
After reviewing the portfolio companies’ performance and the circumstances surrounding the investments, the
Corporation ceased accruing interest income on the following investment instruments:
Interest Investment Year that Interest
Company Rate Cost Accrual Ceased
G-Tec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8% $400,000 2004
UStec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% 100,000 2006
WineIsIt.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% 801,918 2005
Interest from other investments — The increase in interest income was primarily due to higher cash balances
and higher yields on these cash balances. The higher cash balances were a result of portfolio investment repayments
and sales of portfolio companies’ equity instruments.
Dividend and other investment income — Dividend income for the year ended December 31, 2007 consisted of
distributions from Gemcor for $1,372,407, Carolina Skiff for $40,464, Somerset for $36,788, Topps for $19,524,
and Vanguard for $681. Dividend income for the year ended December 31, 2006 consisted of distributions from
Gemcor for $375,372, Topps for $37,334, Carolina Skiff for $18,416 and Vanguard for $1,174.
Other income — The decrease in other income from December 31, 2006 to December 31, 2007 was due to the
fact that the Corporation only charged two portfolio companies closing fees in 2006 and no closing fees were
charged in 2007. The Corporation also charged Concentrix an $18,000 prepayment penalty fee that was included in
other income during 2006. In addition board attendance income amounted to $13,000 for the year ended
December 31, 2007 and $9,000 for year ended December 31, 2006.
Operating Expenses
Comparison of the years ended December 31, 2008 and 2007
December 31, December 31,
2008 2007 Increase % Increase
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . $1,721,555 $1,650,947 $70,608 4.3%
Operating expenses predominately consist of interest expense on SBA obligations, employee compensation
and benefits, directors’ fees, shareholder related costs, office expenses, professional fees, and expenses related to
identifying and reviewing investment opportunities.
The increase in operating expenses during the year ended December 31, 2008 can be attributed to an increase
of 17%, or $35,845, in professional fees. A portion of the increase in this expense can be attributed to the escalating
legal, audit and tax costs due to the increasingly more complex regulatory environment in which the Corporation
operates. In addition, in order to comply with the SEC rules regarding the Corporation’s operating structure the
Corporation has incurred additional legal fees associated with the corporate reorganization of the SBIC subsidiary.
The increase is also due to the 63%, or $32,583, increase in other operating expenses. Other operating expenses
in the current year included a write off of an escrow receivable in the amount of $69,421 for UStec. Management has
deemed the collection of this escrow receivable doubtful based on the ongoing negotiations with UStec. Other
operating expenses also include a one-time $5,000 reorganization fee charged by the SBA to review the corporate
reorganization of Rand SBIC.
19
The SBA interest expense increased 4%, or $19,000, during the current year. Total SBA interest expense was
$522,062 and $503,062 for the years ended December 31, 2008 and 2007, respectively. The Corporation has
borrowed $8,100,000 from the SBA as of December 31, 2008 at an average borrowing rate, including surcharges, of
approximately 5.9%. This interest is paid on a semi-annual basis.
Comparison of the years ended December 31, 2007 and 2006
December 31, December 31,
2007 2006 Increase % Increase
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . $1,650,947 $1,519,184 $131,763 8.7%
The increase in operating expenses during the year ended December 31, 2007 can be primarily attributed to the
83% or $96,754 increase in professional fees. Some of the increase in this expense can be attributed to the escalating
legal, audit and tax costs due to the increasingly more complex regulatory environment in which the Corporation
operates. In addition, in order to comply with the SEC rules regarding the Corporation’s operating structure the
Corporation has incurred legal fees associated with the proposed corporate reorganization of its SBIC subsidiary.
Net Realized Gains and Losses on Investments
Comparison of the years ended December 31, 2008 and 2007
December 31, December 31,
2008 2007 Change
Net Realized (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — $(68,748) $68,748
There were no realized gains or losses during the year ended December 31, 2008.
During the year ended December 31, 2007, the Corporation recognized a net realized loss of $68,748, comprised
of a gain on the sale of Ramsco warrants for $555,000, a gain of $140,048 on its investment in Allworx Corp.
(Allworx), a loss on the Topps investment of ($595,000), a loss of ($130,000) on Takeform, Inc. (Takeform), a loss on
UStec of ($39,236) and a minor gain of $440 on a public security.
In the second quarter of 2007 Ramsco completed a refinancing of its commercial debt. As part of this
restructuring Ramsco was able to pay off the outstanding debenture instrument owed to the Corporation and
repurchase half of the Corporation’s outstanding warrants. The Corporation recognized a $555,000 gain on the
transaction.
The Corporation made an investment in the capital stock of Allworx in the second quarter of 2007 and the
portfolio company merged with PAETEC Holding, Inc. in the fourth quarter of 2007. In conjunction with the
merger, Allworx repaid its debenture instrument and purchased the outstanding equity held by the Corporation for
$640,048, resulting in a $140,048 realized gain.
During 2007 the Corporation recognized a realized loss of $595,000 on its investment in Topps when the plant
that produces its frozen meat products was forced to recall its frozen hamburger products. Topps announced in
October 2007 that due to the economic impact of the recall it would close the Elizabeth, NJ plant and file for
bankruptcy.
The Corporation reclassed its $130,000 loss in Takeform from unrealized to realized in the fourth quarter of
2007 following the repayment of its obligation. The portfolio company had agreed to pay $20,000 of its $150,000
debenture instruments and it satisfied this obligation to the Corporation.
UStec satisfied its $350,000 debenture instrument obligation by a payment of $310,764, which gave rise to a
$39,236 realized loss
Comparison of the years ended December 31, 2007 and 2006
December 31, December 31,
2007 2006 Change
Net Realized (Loss) Gain . . . . . . . . . . . . . . . . . . . . . . . $(68,748) $3,456,441 $(3,525,189)
20
During the year ended December 31, 2007, the Corporation recognized a net realized loss of ($68,748),
comprised of a gain on the sale of Ramsco warrants for $555,000, a gain of $140,048 on its investment in Allworx, a
loss on the Topps investment of ($595,000), a loss of ($130,000) on Takeform, a loss on UStec of ($39,236) and a
minor gain of $440 on a public security.
During the year ended December 31, 2006, the Corporation sold a portion of its shares in Innov-X and
recognized a realized gain of $2,280,682 on the sale.
Furthermore, the Corporation sold its remaining 677,981 shares of Minrad during 2006 and recognized a gain
of $1,256,759. The average sales price of Minrad was $3.26/share and the basis of the stock was $1.36/share. The
Corporation incurred $33,899 in broker transaction fees that were netted against the realized gain. In addition, the
Corporation sold its interest in Vanguard during 2006 and recognized an ($81,000) loss on the disposition.
Net Change in Unrealized Appreciation of Investments
For the years ended December 31, 2008 and 2007
December 31, December 31,
2008 2007 Decrease % Decrease
Net Change in Unrealized Appreciation . . . $601,985 $3,521,821 $(2,919,836) (82.9)%
The increase in unrealized appreciation on investments of $601,985 is due to the following valuation changes
made by the Corporation:
December 31, 2008
Gemcor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,700,000
Kionix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778,432
Bioworks, Inc. (Bioworks) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000)
Wineisit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000)
Niagara Dispensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (111,000)
Photonics Products Group, Inc (Photonics) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150,700)
Carolina Skiff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (227,000)
Golden Goal, LLC (Golden Goal). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (237,413)
APF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (307,334)
Rocket Broadband . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (715,000)
Total Change in net Unrealized Appreciation during the year ended
December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 601,985
The Corporation recognized appreciation on its equity investment in Gemcor based on the improved financial
condition of the portfolio company since the Corporation made its first investment.
Kionix was written up in accordance with FAS 157 due to overall improvement in the revenues, customer base
and the market acceptance of its products.
The Corporation’s investment in Bioworks was valued at zero at December 31, 2008 based on an analysis of
the liquidation preferences of senior securities in the portfolio company.
The Wineisit investment was revalued to zero during the year ended December 31, 2008 after a review by
management indicated a further deterioration of the portfolio company’s business. Wineisit remains in operation
and is developing a new business strategy.
The Corporation converted its debt instruments in Niagara Dispensing to equity during the second quarter of
2008 and revalued its investment in based on the valuation of equity shares at conversion.
Photonics is a publicly traded stock (NASDAQ symbol: PHPG.OB) and is marked to market at the end of each
quarter.
21
The Corporation’s investment in Carolina Skiff was written down to cost based on a review of the company’s
financials and an overall economic downturn in the boating sector.
Rocket Broadband continued to have inadequate cash flow to sustain its operations throughout 2008. This
resulted in the resignation of its Chief Executive Officer during the fourth quarter of 2008. While Rocket Broadband
has been able to continue operations and maintain its base of customers it is seeking additional strategic
opportunities, which may include a merger or sale of the company. Based on a review of the financial restructuring
necessary to maintain the portfolio company’s operations, the Corporation has recognized unrealized depreciation
on its investment in Rocket Broadband and valued its investment at zero. The Corporation’s valuation, if any, may
be adjusted as it obtains more information about the ultimate structure and amount of the financing that Rocket
Broadband is able to secure.
The Corporation’s investment in Golden Goal and APF were written down during 2008 based on a review of
the companies’ financials, their weak financial performance as compared to plan, and an overall economic
downturn in their respective industries.
Synacor filed an S-1 registration statement on August 2, 2007 with the SEC and also filed an amended S-1 in
April 2008. An S-1 is a registration document that a company files with the SEC regarding the proposed sale of its
securities to the public. In October 2008 Synacor withdrew its S-1 plans for a public offering in a notification filed
with the SEC. No valuation change has occurred with respect to the Synacor filings, but the Corporation has
previously written up its investment in Synacor based on new investor financing. The company’s actual financial
performance continues to support the valuation.
All of these value adjustments resulted from a review by management using the guidance set forth by
SFAS 157 and the Corporation’s established valuation policy.
For the years ended December 31, 2007 and 2006
December 31, December 31,
2007 2006 Decrease % Decrease
Net Change in Unrealized Appreciation . . . $3,521,821 $9,958,053 $(6,436,232) (64.6)%
The increase in unrealized appreciation on investments of $3,521,821 was due to the following valuation
changes made by the Corporation:
December 31, 2007
Increase Gemcor valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,500,000
Reclass Takeform to a realized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,000
Increase Photonics valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,480
Adampluseve warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,341
Reclass USTec to realized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,000
Reclass Topps to realized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (332,000)
Total Change in net Unrealized Appreciation during the year ended
December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,521,821
The Corporation recognized appreciation on its equity investment in Gemcor based on the improved financial
condition of the portfolio company since the Corporation made its first investment. Per the Corporation’s valuation
policy, a portfolio company can be valued based on a conservative financial measure if the portfolio company has
been self-financing and has had positive cash flow from operations for at least the past two fiscal years.
The Topps investment was valued to zero during the third quarter of 2007 when the plant that produces its
frozen meat products was forced to recall its frozen hamburgers products. Topps announced on October 5, 2007 that
because of the economic impact of the recall it closed its Elizabeth, NJ plant and subsequently the company filed for
bankruptcy. The Corporation, therefore, realized a total loss on the investment in the fourth quarter of 2007 and
removed the $332,000 of unrealized appreciation on Topps that had been previously recorded.
22
The Corporation recognized appreciation on its remaining equity investment in Adampluseve which partic-
ipated in a round of financing in January 2007 that enabled it to pay off the Corporation’s debenture instrument prior
to the maturity date. The Corporation still holds warrants in Adampluseve, the value of which was adjusted based on
the pricing of this recent round of financing.
USTec and Takeform satisfied their obligations to the Corporation during 2007 and therefore any unrealized
appreciation (depreciation) was reclassified to a realized gain (loss).
Photonics is a publicly traded stock (NASDAQ symbol: PHPG.OB) and is marked to market at the end of the
year.
All of these value adjustments were done in accordance with the Corporation’s established valuation policy.
Net Increase (Decrease) in Net Assets from Operations
The Corporation accounts for its operations using Generally Accepted Accounting Practices (GAAP) for
investment companies. The principal measure of its financial performance is “net increase (decrease) in net assets
from operations” on its consolidated statements of operations. During the year ended December 31, 2008, the net
increase was $409,143, as compared to a net increase in net assets from operations of $2,719,165 in 2007 and a net
increase of $8,166,471 in 2006.
The net increase in net assets from operations for the year ended December 31, 2008 is due to the net unrealized
appreciation on investments of $273,454 and the net investment gain of $135,689. The net increase in net assets
from operations for the year ended December 31, 2007 can be attributed to the investment gain before income taxes
of $651,923 and the net unrealized gain on investments of $2,362,507. In addition, the Corporation recognized a
$316,253 increase in net assets attributed to the cumulative effect adjustment upon adopting the provisions of
FIN 48 “Accounting for Uncertainty in Income Taxes”. The net increase for the year ended December 31, 2006 is
due to the $9,431,273 net realized and unrealized gain on investments.
Liquidity and Capital Resources
The Corporation’s principal objective is to achieve capital appreciation. Therefore, a significant portion of the
investment portfolio is structured to maximize the potential for capital appreciation and certain of the Corporation’s
portfolio investments may be structured to provide little or no current yield in the form of dividends or interest
payments.
As of December 31, 2008, the Corporation’s total liquidity, consisting of cash and cash equivalents, was
$2,757,653.
Net cash used in operating activities has averaged approximately $469,000 over the last three years and
management anticipates cash will continue to be utilized at similar levels. The cash flow may fluctuate based on
possible expenses associated with compliance with new regulations.
The Corporation used approximately $925,000 in net cash flow from investing activities in fiscal 2008. The
Corporation realized approximately $545,000 in net cash flow from investing activities of for fiscal year 2007 and
approximately $2.5 million of cash for investing activities in fiscal year 2006. The Corporation will generally use
cash in investing activities as it builds its portfolio utilizing its available cash and proceeds from liquidations of
portfolio investments. The Corporation anticipates that it will continue to make new investments and may
experience a net use of cash over the next two years. In addition, significant liquidating events within the
Corporation’s investment portfolio are difficult to determine with any certainty.
The Corporation had paid $100,000 to the SBA to reserve its approved $10,000,000 leverage. The Corporation
has drawn down $8,100,000 of this leverage as of December 31, 2008. The remaining leverage commitment of
$1.9 million expired on September 30, 2008.
23
The following table summarizes the cash to be received over the next five years from portfolio companies
based on contractual obligations as of December 31, 2008. These payments represent scheduled principal and
interest payments that are contained in the investment documents of each portfolio company.
Cash Receipts due by year
2013 and
2009 2010 2011 2012 beyond
Scheduled Cash Receipts from
Portfolio Companies . . . . . . . . . . $235,500 $1,646,000 $2,700,000 $918,000 $0
The preceding table only includes debenture instruments and does not include any equity investments which
may provide additional proceeds upon exit of these securities.
During late 2007 and throughout 2008, the global economy experienced severe turmoil. Therefore, the debt
and equity markets in the United States have been affected by this crisis. If market conditions continue to
deteriorate, the Corporation may suffer losses on its investment portfolio, which could impact cash receipts over the
next couple of years.
The unfavorable change in credit market conditions also has created opportunities for capital providers, like
the Corporation, because small business are selling for lower prices, and they are generally willing to pay higher
interest rates and to accept more contractual terms that are more favorable to us in their investment agreements.
Accordingly, for firms that continue to have access to capital, management believes that the current environment
could provide investment opportunities on more favorable terms than have been available in prior periods. Because
the Corporation has used its available SBA leverage, in the short term, if the Corporation requires significant
additional capital to take advantage of current investment opportunities, it will need to rely primarily on its ability to
make public or private offerings of Rand’s common stock. Although the Corporation currently has no specific plans
as to the timing or amount of any common stock offering it might make, it is considering the possibility of making
such an offering during the next year in order to raise additional capital to pursue favorable investment
opportunities.
Any common stock offering that the Corporation may make will be need to be based upon the market price of
its currently outstanding shares. As a regulated BDC, the Corporation is generally prohibited from selling its
common shares at prices that are less than the NAV of its common stock at the time of the sale. The Corporation’s
common stock sold in the NASDAQ market at a premium to net asset value during 2007, but during most of 2006
and 2008 its stock sold in a range that was below current per share NAV. In order to permit the Corporation to sell its
common stock at prices below current net asset value if a majority of the Directors of the Corporation who are not
interested persons (as defined under the Investment Company Act) make a specific determination that such a sale
would be in the best interests of the Corporation, it is seeking approval by shareholder vote at its annual meeting of a
one-year exemption from the provisions of the Investment Company Act that would otherwise prohibit it from
making sales of its common stock at less than NAV per share.
The inability to raise capital through timely sales of common stock could also have the effect of forcing the
Corporation to sell assets that it would not otherwise sell, and such sales could occur at times that are disadvan-
tageous to sell.
Management expects that the cash and cash equivalents at December 31, 2008, coupled with the scheduled
interest and dividend payments on its portfolio investments, will be sufficient to meet the Corporation’s cash needs
throughout 2009. The Corporation is also evaluating potential exits from portfolio companies and sale of its
common stock to increase the amount of liquidity available for new investments and operating activities. The
potential sale of stock or portfolio assets is subject to inherent market risks and volatility, which may affect the
ability of the Corporation to complete these sales and provide cash to the Corporation over the next twelve months.
24
Disclosure of Contractual Obligations
The following table shows the Corporation’s contractual obligations at December 31, 2008. The Corporation
does not have any capital lease obligations or other long-term liabilities reflected on its balance sheet.
Payments due by period
Less than 1-3 3-5 More
Total 1 year years years than 5 yrs
SBA Debentures . . . . . . . . . . . . . . . . . . . $8,100,000 $ 0 $ 0 $0 $8,100,000
Operating Lease Obligations (Rent of
office space) . . . . . . . . . . . . . . . . . . . . $ 32,520 $16,080 $16,440 $0 $ 0
Total . . . . . . . . . . . . . . . . . . . . . . . . . $8,132,520 $16,080 $16,440 $0 $8,100,000
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Corporation’s investment activities contain elements of risk. The portion of the Corporation’s investment
portfolio consisting of equity and debt securities in private companies is subject to valuation risk. Because there is
typically no public market for the equity and equity-linked debt securities in which it invests, the valuation of the
equity interests in the portfolio is stated at “fair value” as determined in good faith by the Board of Directors in
accordance with the Corporation’s investment valuation policy. (The discussion of valuation policy contained in the
“Notes to Schedule of Portfolio Investments” in the consolidated financial statements contained in Item 8 of this
report is hereby incorporated herein by reference.) In the absence of a readily ascertainable market value, the
estimated value of the Corporation’s portfolio may differ significantly from the values that would be placed on the
portfolio if a ready market for the investments existed. Any changes in valuation are recorded in the Corporation’s
consolidated statement of operations as “Net unrealized appreciation on investments.”
At times a portion of the Corporation’s portfolio may include marketable securities traded in the over-the-
counter market. In addition, there may be a portion of the Corporation’s portfolio for which no regular trading
market exists. In order to realize the full value of a security, the market must trade in an orderly fashion or a willing
purchaser must be available when a sale is to be made. Should an economic or other event occur that would not
allow markets to trade in an orderly fashion, the Corporation may not be able to realize the fair value of its
marketable investments or other investments in a timely manner.
As of December 31, 2008, the Corporation did not have any off-balance sheet investments or hedging
investments.
25
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements and consolidated supplemental schedule of the Corporation
and report of independent auditors thereon are set forth below:
Statements of Financial Position as of December 31, 2008 and 2007
Statements of Operations for the three years in the period ended December 31, 2008
Statements of Changes in Net Assets for the three years in the period ended December 31, 2008
Statements of Cash Flows for the three years in the period ended December 31, 2008
Schedule of Portfolio Investments as of December 31, 2008
Schedules of Selected Per Share Data and Ratios for the five years in the period ended December 31, 2008
Notes to the Consolidated Financial Statements
Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the year
ended December 31, 2008
Report of Independent Registered Public Accounting Firm
26
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31,
2008 2007
Assets
Investments at fair value (identified cost: 2008 — $14,386,451,
2007 — $13,390,644) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,126,282 $26,528,490
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,757,653 4,396,595
Interest receivable ( net of allowance 2008 — $122,817, 2007 — $122,000) . . . . 1,013,888 647,001
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,974 1,150,065
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32,228,797 $32,722,151
Liabilities and Stockholders’ Equity (net assets)
Liabilities:
Debentures guaranteed by the SBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,100,000 $ 8,100,000
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,490,000 3,955,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,723 474,465
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,731 321,210
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,377 53,653
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,001,831 12,904,328
Stockholders’ equity (net assets):
Common stock, $.10 par; shares authorized 10,000,000; shares issued
5,763,034 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576,304 576,304
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,973,454 6,973,454
Accumulated net investment (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,743,908) (3,940,409)
Undistributed net realized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . 7,735,477 7,796,289
Net unrealized appreciation on investments . . . . . . . . . . . . . . . . . . . . . . . . . . 8,732,845 8,459,391
Treasury stock, at cost, 44,100 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47,206) (47,206)
Net assets (per share 2008 — $3.54 , 2007 — $3.47) . . . . . . . . . . . . . . . . . . . 20,226,966 19,817,823
Total liabilities and stockholders’ equity (net assets) . . . . . . . . . . . . . . . . . . . $32,228,797 $32,722,151
See accompanying notes
27
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 2008, 2007 and 2006
2008 2007 2006
Investment income:
Interest from portfolio companies . . . . . . . . . . . . . . . . . . . . . . $ 608,180 $ 618,430 $ 757,824
Interest from other investments . . . . . . . . . . . . . . . . . . . . . . . . 90,660 173,664 53,104
Dividend and other investment income . . . . . . . . . . . . . . . . . . 1,027,377 1,469,864 432,296
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,786 40,912 83,738
1,757,003 2,302,870 1,326,962
Operating expenses:
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440,337 460,917 482,067
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,659 112,147 101,785
Directors’ fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,250 77,750 59,500
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,667 212,822 116,068
Stockholders and office operating . . . . . . . . . . . . . . . . . . . . . . 120,260 122,332 108,687
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,489 43,674 43,674
Corporate development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,042 66,854 54,233
Other operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,972 51,389 10,769
1,198,676 1,147,885 976,783
Interest on SBA obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 522,062 503,062 472,526
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 817 — 69,875
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,721,555 1,650,947 1,519,184
Investment gain (loss) before income taxes . . . . . . . . . . . . . . . 35,448 651,923 (192,222)
Current income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . 672,290 901,511 401,801
Deferred income tax (benefit) expense . . . . . . . . . . . . . . . . . . (772,531) (674,994) 670,779
Net investment gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,689 425,406 (1,264,802)
Realized and unrealized gain (loss) on investments:
Net realized (loss) gain on sales and dispositions . . . . . . . . . . — (68,748) 3,456,441
Unrealized appreciation (depreciation) on investments:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,137,846 9,616,025 (342,028)
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,739,831 13,137,846 9,616,025
Change in unrealized appreciation (depreciation) before
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601,985 3,521,821 9,958,053
Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . . 328,531 1,159,314 3,983,221
Net increase in unrealized appreciation . . . . . . . . . . . . . . . . . . 273,454 2,362,507 5,974,832
Net realized and unrealized gain on investments . . . . . . . . . . . 273,454 2,293,759 9,431,273
Net increase in net assets from operations . . . . . . . . . . . . . . . . $ 409,143 $ 2,719,165 $ 8,166,471
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . 5,718,934 5,718,934 5,718,934
Basic and diluted net increase in net assets from operations per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.07 $ 0.48 $ 1.43
See accompanying notes
28
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
For The Years Ended December 31, 2008, 2007 and 2006
2008 2007 2006
Net assets at beginning of period . . . . . . . . . . . . . . . . . . . . . . $19,817,823 $16,782,405 $ 8,615,934
Net investment gain(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,689 425,406 (1,264,802)
Cumulative effect adjustment for uncertain tax positions —
FIN 48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 316,253 —
Net realized (loss) gain on sales and dispositions of
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (68,748) 3,456,441
Net increase in unrealized appreciation . . . . . . . . . . . . . . . . . . . 273,454 2,362,507 5,974,832
Net increase in net assets from operations . . . . . . . . . . . . . . . . . 409,143 3,035,418 8,166,471
Net assets at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,226,966 $19,817,823 $16,782,405
See accompanying notes.
29
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2008, 2007 and 2006
2008 2007 2006
Cash flows from operating activities:
Net increase in net assets from operations . . . . . . . . . . . . . . . . $ 409,143 $ 2,719,165 $ 8,166,471
Adjustments to reconcile net increase in net assets to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 52,230 33,598 26,672
Original issue discount accretion . . . . . . . . . . . . . . . . . . . . . — (62,333) —
Change in interest receivable allowance . . . . . . . . . . . . . . . . 817 — —
Increase in unrealized appreciation of investments . . . . . . . . (601,985) (3,521,821) (9,958,053)
Deferred tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . (465,000) 484,453 4,654,000
Net realized loss (gain) on portfolio investments . . . . . . . . . . — 68,748 (3,456,441)
Payment in kind, interest accrued . . . . . . . . . . . . . . . . . . . . . (15,380) — —
Non-cash conversion of debenture interest . . . . . . . . . . . . . . (67,235) (50,000) (34,356)
Changes in operating assets and liabilities:
(Increase) in interest receivable . . . . . . . . . . . . . . . . . . . . (367,704) (139,759) (209,623)
Decrease (increase) in other assets . . . . . . . . . . . . . . . . . . 779,083 (35,229) 42,440
(Decrease) increase in income taxes payable . . . . . . . . . . . (375,742) 63,890 —
(Decrease) increase in accounts payable and accrued
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,479) (17,350) 560,246
(Decrease) increase in deferred revenue . . . . . . . . . . . . . . (33,276) 8,048 (34,278)
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,122,671) (3,167,755) (8,409,393)
Net cash used in operating activities . . . . . . . . . . . . . (713,528) (448,590) (242,922)
Cash flows from investing activities:
Investments originated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,626,657) (2,165,266) (3,383,769)
Proceeds from sale of portfolio investments . . . . . . . . . . . . . . . — 255,440 4,374,762
Proceeds from loan repayments . . . . . . . . . . . . . . . . . . . . . . . . 713,465 2,456,509 1,473,322
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,222) (1,350) (12,255)
Net cash (used in) provided by investing activities . . . (925,414) 545,333 2,452,060
Cash flows from financing activities:
Proceeds from SBA debenture . . . . . . . . . . . . . . . . . . . . . . . . . — — 900,000
Origination costs to SBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (19,125)
Net cash provided by financing activities . . . . . . . . . . — — 880,875
Net (decrease) increase in cash and cash equivalents . . . . . . . . (1,638,942) 96,743 3,090,013
Cash and cash equivalents:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,396,595 4,299,852 1,209,839
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,757,653 $ 4,396,595 $ 4,299,852
See accompanying notes
30
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2008
Company, Geographic Location, (b) Per
Business Description, (Industry) Date (c) (d) Share
and Website Type of Investment Acquired Equity Cost Value of Rand
Non-Control/Non-Affiliate
Investments: (k)
Adampluseve, Inc. Warrants to purchase 1,715 7/14/06 2% $ 68,000 $ 133,341 $ .02
(dba Adam) (g) Series A convertible preferred
New York, NY. Luxury sports shares.
wear designer for men and
women. (Fashion Design)
www.shopadam.com
GridApp Systems, Inc. (e) (g) $660,000 term note at 4% simple 11/25/08 3% 666,667 666,667 .12
New York, NY. Provider of interest, 8% deferred interest
database automation software (PIK) due January 4, 2012.
that helps businesses gain control $6,667 convertible note at 4%
of their heterogeneous database due November 28, 2018.
applications through a
centralized software console.
(Software) www.gridapp.com
Kionix, Inc. 30,241 shares Series B preferred 5/17/02 2% 1,506,043 2,000,000 .35
Ithaca, NY. Develops innovative stock. 696,296 shares Series C
micro-electronic mechanical preferred stock.
systems (MEMS) based inertial (g) 2,862,091 shares Series A
sensors used in consumer preferred stock. 714,285 shares
electronics, automation and Series B preferred stock.
healthcare sectors.
(Manufacturing)
www.kionix.com
Mezmeriz, Inc. (g) $100,000 convertible note at 9% 1/9/08 — 100,000 100,000 .02
Ithaca, NY. Developer of micro due January 9, 2010.
mirror technology that replaces
silicon with carbon fibers in
MEMS enabling efficient, wide-
angle, Pico projectors to be
embedded in mobile devices.
(Electronics Developer)
www.mezmeriz.com
Photonic Products Group, Inc 66,000 shares common stock. 10/31/00 1% 165,000 112,000 .02
(OTC:PHPG.OB) (a) (i)
Northvale, NJ. Develops and
manufactures products for laser
photonics industry.
(Manufacturing) www.inrad.com
Somerset Gas Transmission 26.5337 units. 7/10/02 2% 719,097 786,748 .14
Company, LLC (e)
Columbus, OH. Natural gas
transportation company.
(Oil and Gas)
www.somersetgas.com
Synacor Inc. (g) 234,558 Series A preferred 11/18/02 4% 1,349,479 4,168,001 .73
Buffalo, NY. Develops shares. 600,000 shares of Series
provisioning platforms for B preferred shares. 240,378
aggregation and delivery of Series C preferred shares.
content and services across 897,438 common shares.
multiple digital devices.
(Software)
www.synacor.com
Subtotal Non-Control/ $4,574,286 $7,966,757 $1.40
Non-Affiliate Investments
31
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2008 – (Continued)
(b) Per
Date (c) (d) Share
Company and Business Type of Investment Acquired Equity Cost Value of Rand
Affiliate Investments: (l) $587,786 consolidated senior 7/8/04 6% $ 607,335 $ 300,000 $ .05
APF Group, Inc. (e) (g) subordinated note at 8% due
Yonkers, NY. Manufacturer of June 30, 2011. $13,514 senior
museum quality picture frames subordinated note at 14% due
and framed mirrors for June 30, 2011. Warrants to
museums, art galleries, retail purchase 10.2941 shares of
frame shops, upscale designers common stock.
and prominent collectors.
(Manufacturing)
www.apfgroup.com
Associates Interactive, $247,813 promissory note at 10/15/07 22% 250,000 250,000 .04
LLC (e) (g) 9% due December 19, 2012.
Buffalo, NY. Provider of Investor units totaling 21.88%
training content and of company.
certifications used to train retail
sales associates. (Education and
Training)
www.associatesinteractive.com
Carolina Skiff LLC (e) (g) $985,000 Class A preferred 1/30/04 5% 1,000,000 1,000,000 .18
Waycross, GA. Manufacturer of membership interest at 7.5%.
fresh water, ocean fishing and Redeemable January 31, 2010.
pleasure boats. (Manufacturing) 5% common membership
www.carolinaskiff.com interest.
(j) Interest receivable $638,693.
EmergingMed.com, Inc. (g) $500,000 senior subordinated 12/19/05 7% 500,000 500,000 .09
New York, NY. Cancer clinical note at 10% due December 19,
trial matching and referral 2010. Warrants for 5.5% of
service. (Software) common stock.
www.emergingmed.com (j) Interest receivable $151,667.
Golden Goal LLC (g) 191,811 Class C units at 4%. 12/10/07 6% 637,414 400,000 .07
Fort Ann, NY. Youth soccer and
lacrosse tournament park.
(Sports and Entertainment)
www.goldengoalpark.com
Innov-X Systems, Inc. (g) 2,642 Series A convertible 9/27/04 9% 1,000,000 8,761,700 1.54
Woburn, MA. Manufactures preferred stock. Warrants for
portable x-ray fluorescence 21,596 common shares. 8%
(XRF) analyzers used in cumulative dividend.
metals/alloy analysis. (j) Interest receivable $162,411.
(Manufacturing)
www.innovxsys.com
Niagara Dispensing 202,081 Series B preferred 3/8/06 14% 1,281,783 1,170,783 .20
Technologies, Inc. (e) stock.
Amherst, NY. Beverage (g) 463,691 Series A preferred
dispensing technology stock. 518,752 Series B
development and products preferred stock.
manufacturer, specializing in
rapid pour beer dispensing
systems for high volume
stadium and concession
operations. (Manufacturing)
www.exactpour.com
32
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2008 – (Continued)
(b) Per
Date (c) (d) Share
Company and Business Type of Investment Acquired Equity Cost Value of Rand
RAMSCO (e) (g) $300,000 promissory notes at 11/19/02 6% 300,000 300,000 .05
Albany, NY. Distributor of 9% due October 20, 2010.
water, sanitary, storm sewer and Warrants for 5.99% of common
specialty construction materials stock.
to the contractor, highway and
municipal construction markets.
(Distributor)
www.ramsco.com
SOMS Technologies, LLC (g) $250,000 secured convertible 12/2/08 — 250,000 250,000 .04
Valhalla, NY. Produces and note at 10% due December 2,
markets the microGreen 2010.
Extended Performance Oil
Filter. (Auto Parts Developer)
www.microgreenfilter.com
Ultra — Scan Corporation 536,596 common shares. 12/11/92 4% 938,164 1,203,000 .21
Amherst, NY. Biometrics 107,104 Series A-1 preferred
application developer of shares.
ultrasonic fingerprint (g) 95,284 Series A-1 preferred
technology. (Electronics shares.
Hardware/Software)
www.ultra-scan.com
Subtotal Affiliate Investments $ 6,764,696 $14,135,483 $2.47
Control Investments(m)
Gemcor II, LLC (e) (g) (h) $250,000 subordinated note at 6/28/04 31% 603,200 5,803,201 1.02
West Seneca, NY. Designs and 8% due June 28, 2010 with
sells automatic riveting warrant to purchase 6.25
machines used in the assembly membership units. 25
of aircraft components. membership units.
(Manufacturing)
www.gemcor.com
G-TEC Natural Gas Systems 28.925% Class A membership 8/31/99 29% 400,000 198,000 .03
Buffalo, NY. Manufactures and interest. 8% cumulative
distributes systems that allow dividend.
natural gas to be used as an
alternative fuel to gases.
(Manufacturing)
www.gas-tec.com
Subtotal Control Investments $ 1,003,200 $ 6,001,201 $1.05
Other Investments (e) Various 2,044,269 22,841 .00
Total portfolio investments (f) $14,386,451 $28,126,282 $4.92
33
RAND CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 2008 – (Continued)
Notes to Consolidated Schedule of Portfolio Investments
(a) Unrestricted securities are freely marketable securities having readily available market quotations. All other
securities are restricted securities, which are subject to one or more restrictions on resale and are not freely
marketable. At December 31, 2008 restricted securities represented 99% of the value of the investment
portfolio. Freed Maxick & Battaglia, CPA’s PC has not examined the business descriptions of the portfolio
companies.
(b) The Date Acquired column indicates the year in which the Corporation acquired its first investment in the
company or a predecessor company.
(c) The equity percentages estimate the Corporation’s ownership interest in the portfolio investment. The
estimated ownership is calculated based on the percent of outstanding voting securities held by the Corporation
or the potential percentage of voting securities held by the Corporation upon exercise of warrants or conversion
of debentures, or other available data. Freed Maxick & Battaglia, CPA’s, PC has not audited the equity
percentages of the portfolio companies. The symbol “ 1%” indicates that the Corporation holds an equity
interest of less than one percent.
(d) Under the valuation policy of the Corporation, unrestricted securities are valued at the closing price for
publicly held securities for the last three days of the month. Restricted securities, including securities of
publicly-held companies, which are subject to restrictions on resale, are valued at fair value as determined by
the Board of Directors. Fair value is considered to be the amount which the Corporation may reasonably expect
to receive for portfolio securities when sold on the valuation date. Valuations as of any particular date, however,
are not necessarily indicative of amounts which may ultimately be realized as a result of future sales or other
dispositions of securities and these favorable or unfavorable differences could be material. Among the factors
considered by the Board of Directors in determining the fair value of restricted securities are the financial
condition and operating results, projected operations, and other analytical data relating to the investment. Also
considered are the market prices for unrestricted securities of the same class (if applicable) and other matters
which may have an impact on the value of the portfolio company. The Corporation has also adopted
SFAS No. 157 “Fair Value Measurements” which defines fair value and establishes guidelines for measuring
fair value and designates the Corporation’s investment as generally “Level 3” assets due to their privately held
restricted nature, their size and the nature of Rand’s securities held.
(e) These investments are income producing. All other investments are non-income producing. Income producing
investments have generated cash payments of interest or dividends within the last twelve months.
(f) Income Tax Information — As of December 31, 2008, the aggregate cost of investment securities approx-
imated $14.4 million. Net unrealized appreciation aggregated approximately $13.7 million, of which
$16.6 million related to appreciated investment securities and $2.9 million related to depreciated investment
securities.
(g) Rand Capital SBIC, L.P. investment.
(h) Reduction in cost and value from previously reported balances reflects current principal repayment.
(i) Publicly owned company.
(j) Represents interest due (amounts over $50,000 net of reserves) from investment included as interest receivable
on the Corporation’s Balance Sheet.
(k) Non-Control/Non-Affiliate investments are investments that are neither Control Investments or Affiliated
Investments.
(l) Affiliate investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”), as those
Non-Control investments in companies in which between 5% and 25% of the voting securities are owned or
Rand holds a Board seat.
(m) Control investments are defined by the 1940 Act as investments in companies in which more than 25% of the
voting securities are owned or greater than 50% of the board representation is maintained.
34
RAND CAPITAL CORPORATION AND SUBSIDIARIES
SCHEDULES OF SELECTED PER SHARE DATA AND RATIOS
For the Five Years Ended December 31, 2008, 2007, 2006, 2005 and 2004
Selected data for each share of common stock outstanding throughout the five most current years is as follows:
Year Ended December 31,
2008 2007 2006 2005 2004
Income from investment
operations (1):
Investment income . . . . . . . . . . . . . . $ 0.31 $ 0.40 $ 0.23 $ 0.13 $ 0.13
Expenses . . . . . . . . . . . . . . . . . . . . . 0.30 0.28 0.26 0.22 0.16
Investment gain (loss) before income
taxes . . . . . . . . . . . . . . . . . . . . . . 0.01 0.12 (0.03) (0.09) (0.03)
Income tax (benefit) expense . . . . . . (0.01) 0.04 0.19 (0.06) (0.01)
Net investment gain (loss) . . . . . . . . 0.02 0.08 (0.22) (0.03) (0.02)
Cumulative effect adjustments for
uncertain tax positions- FIN 48 . . . 0.00 0.06 0.00 0.00 0.00
Net realized and unrealized gain
(loss) on investments . . . . . . . . . . 0.05 0.40 1.65 (0.04) (0.02)
Increase (decrease) in net asset
value . . . . . . . . . . . . . . . . . . . . . . 0.07 0.54 1.43 (0.07) (0.04)
Net asset value, beginning of year . . . . 3.47 2.93 1.51 1.58 1.62
Net asset value, end of year . . . . . . . . . $ 3.54 $ 3.47 $ 2.93 $ 1.51 $ 1.58
Per share market value, end of year . . . $ 3.50 $ 3.60 $ 3.50 $ 1.34 $ 1.56
Total return based on market value . . . . (2.78)% 2.86% 161.2% (14.1)% 7.6%
Total return based on net asset value . . . 2.1% 18.1% 94.8% (4.6)% (2.5)%
Supplemental data:
Ratio of expenses before income
taxes to average net assets. . . . . . . 8.60% 9.02% 11.96% 14.35% 9.86%
Ratio of expenses including taxes to
average net assets . . . . . . . . . . . . . 9.10% 10.26% 20.41% 10.34% 9.53%
Ratio of net investment gain (loss) to
average net assets . . . . . . . . . . . . . 0.68% 2.32% (9.96)% (1.99)% (1.23)%
Portfolio turnover . . . . . . . . . . . . . . . 6.0% 8.6% 18.1% 21.6% 50.4%
Net assets end of year . . . . . . . . . . . . . $20,226,966 $19,817,823 $16,782,405 $8,615,934 $9,027,054
Weighted average shares outstanding at
end of year . . . . . . . . . . . . . . . . . . . 5,718,934 5,718,934 5,718,934 5,718,934 5,718,934
(1) Per share data are based on weighted average shares outstanding and results are rounded.
35
RAND CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. – Summary of Significant Accounting Policies
Nature of Business – Rand Capital Corporation (“Rand”) was founded in 1969 and is headquartered in
Buffalo, New York. Rand’s investment strategy is to seek capital appreciation through venture capital investments in
small, unseasoned, developing companies, primarily in the northeastern United States.
Rand operates as a publicly-held venture capital company, listed on the NASDAQ Small Cap Market under the
symbol “RAND”.
Rand was incorporated under the law of New York on February 24, 1969. Beginning in 1971, Rand operated as
a publicly traded, closed-end, diversified management company that was registered under Section 8 of the
Investment Company Act of 1940 (the “1940 Act”). On August 16, 2001, Rand elected to be treated as a business
development company (“BDC”) under the 1940 Act. In 2002, Rand formed a wholly-owned subsidiary for the
purpose of operating it as a small business investment company (“SBIC”) licensed by the U.S. Small Business
Administration (“SBA”). The subsidiary received an SBA license to operate as an SBIC in August of 2002. The
subsidiary, which had been organized as a Delaware limited partnership, was converted into New York corporation
on December 31, 2008, at which time its operations as a licensed BDC were continued by a newly formed
corporation under the name of Rand Capital SBIC, Inc. (“Rand SBIC”). As of December 31, 2008, the Corporation
had drawn down $8,100,000 on its leverage commitments (see Note 4).
Principles of Consolidation – The consolidated financial statements include the accounts of Rand, its
wholly-owned subsidiary Rand SBIC, and the predecessor wholly-owned limited partnership (collectively, the
“Corporation”). All intercompany accounts and transactions have been eliminated in consolidation.
Investments – Investments are valued in accordance with the Corporation’s established valuation policy and
are stated at fair value as determined in good faith by the management of the Corporation and submitted to the Board
of Directors for approval. There is no single standard for determining fair value in good faith. As a result,
determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio
investment while employing a consistently applied valuation process for investments. The Corporation analyzes
and values each individual investment on a quarterly basis, and records unrealized depreciation for an investment
that it believes has become impaired, including where collection of a loan or realization of the recorded value of an
equity security is doubtful. Conversely, the Corporation will record unrealized appreciation if it believes that the
underlying portfolio company has appreciated in value and, therefore, its equity security has also appreciated in
value. These estimated fair values may differ from the values that would have been used had a ready market for the
investments existed and these differences could be material if our assumptions and judgments differ from results of
actual liquidation events.
In September, 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) 157, Fair Value Measurements. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting practices (“GAAP”), and expands disclosures
about fair value measurements. This statement was effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those years. On January 1, 2008, the Corporation
adopted SFAS 157.
SFAS No. 157 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, used in the Corporation’s valuation
at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or
similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3: Unobservable and significant inputs to determining the fair value
Most of the Corporation’s investments are classified in Level 3 due to their privately held restricted nature.
36
RAND CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Assets Measured at Fair Value on a Recurring Basis
Fair Value Measurements at Reported Date Using
Quoted Prices in Significant Other Significant
Active Markets for Observable Unobservable
December 31, Identical Assets Inputs Inputs
Description 2008 (Level 1) (Level 2) (Level 3)
Venture Capital Investments . . . . . . $28,126,282 $112,000 $0 $28,014,282
Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
Fair Value Measurements
Using Significant
Unobservable Inputs (Level 3)
Venture Capital Investments
Beginning Balance, December 31, 2007, of Level 3 Assets . . . . . . . . . $26,265,790
Realized Gains or Losses included in net change in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Unrealized gains or losses included in net change in net assets from
operations
APF Group, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (307,334)
BioWorks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000)
Carolina Skiff LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (227,000)
Gemcor LLC1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700,000
Golden Goal LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (237,413)
Kionix, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778,432
Rocket Broadband Networks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . (715,000)
Niagara Dispensing Technologies, Inc . . . . . . . . . . . . . . . . . . . . . . . . (111,000)
Wineisit.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000) $ 752,685
Purchases of Securities
Associates Interactive, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,000
APF Group, Inc. capitalized Payment in Kind and interest
conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,832
GripApp Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666,667
Mezmeriz, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Niagara Dispensing Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . . 374,990
Niagara Dispensing Technologies, Inc interest conversion . . . . . . . . . 41,783
Rocket Broadband Networks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
SOMS Technologies, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 $ 1,709,272
Repayments of Securities
New Monarch Machine Tool, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (520,147)
Contract Staffing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (131,065)
Gemcor II, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62,253) $ (713,465)
Transfers in or out of Level 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Ending Balance, December 31, 2008, of Level 3 Assets . . . . . . . . . . . $28,014,282
37
RAND CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Fair Value Measurements
Using Significant
Unobservable Inputs (Level 3)
Venture Capital Investments
The amount of total gains or (losses) for the period included in
earnings (or changes in net assets) attributable to the change in
unrealized gains or losses relating to assets still held at the
reporting date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 752,685
Gains and losses (realized and unrealized) included in net increase
in net assets from operations for the period above are reported as
follows:
Net Gain (Loss) on Sales and Dispositions . . . . . . . . . . . . . . . . . . . . . . $ 0
Change in unrealized gains or losses relating to assets still held at
reporting date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 752,685
In the valuation process, the Corporation uses financial information received from its portfolio companies,
which includes both audited and unaudited financial statements, annual projections and budgets prepared by the
portfolio company and other financial and non-financial business information supplied by the portfolio companies’
management. This information is used to determine financial condition, performance, and valuation of the portfolio
investments. The valuation may be reduced if a company’s performance and potential have significantly deteri-
orated. If the factors which led to the reduction in valuation are overcome, the valuation may be restored.
Another key factor used in valuing equity investments is recent arms-length equity transactions with unrelated
new investors entered into by the portfolio company that the Corporation utilizes to form a basis for its underlying
value. Many times the terms of these equity transactions may not be identical to the equity transactions between the
portfolio company and the Corporation, and the impact of the discrepancy in transaction terms on the market value
of the portfolio company may be difficult or impossible to quantify.
Any changes in estimated fair value are recorded in our statement of operations as “Net increase in unrealized
appreciation.”
Investments are stated at fair value as determined in good faith by the Board of Directors, as described in the
Notes to Consolidated Schedule of Portfolio Investments. Certain investment valuations have been determined by
the Board of Directors in the absence of readily ascertainable fair values. The estimated valuations are not
necessarily indicative of amounts which may ultimately be realized as a result of future sales or other dispositions of
securities, and these favorable or unfavorable differences could be material.
Certain investment agreements require the portfolio companies to meet certain financial and non-financial
covenants. At December 31, 2008 certain of Rand’s portfolio investments were in violation of their loan covenants.
Management of the Corporation is pursuing compliance and has considered this in determining the carrying value
of the investment and may waive such defaults in certain circumstances.
Realized Gain or Loss and Unrealized Appreciation or Depreciation of Investments – Amounts reported as
realized gains and losses are measured by the difference between the proceeds from the sale or exchange and the
cost basis of the investment without regard to unrealized gains or losses recorded in prior periods. The cost of
securities that have, in the Board of Directors’ judgment, become worthless, are written off and reported as realized
losses. Unrealized appreciation or depreciation reflects the difference between the valuation of the investments and
the cost basis of the investments.
Investment Classification – In accordance with the provisions of the Investment Company Act of 1940 (1940
Act), the Corporation classifies its investments by level of control. In the 1940 Act “Control Investments” are
investments in those companies that the Corporation is deemed to “Control”. The Corporation is deemed to control
a portfolio company if it owns more than 25% of the voting securities of the company or has greater than 50%
38
RAND CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
representation on the company’s board. “Affiliate Investments” are those non-control companies that the
Corporation owns between 5% and 25% of the voting securities. “Non-Control/Non-Affiliate Investments” are
those companies that are neither Control Investments nor Affiliate Investments.
Cash and Cash Equivalents – Temporary cash investments having a maturity of three months or less when
purchased are considered to be cash equivalents.
Revenue Recognition – Interest Income – Interest income generally is recognized on the accrual basis except
where the investment is in default or otherwise presumed to be in doubt. In such cases, interest is recognized at the
time of receipt. A reserve for possible losses on interest receivable is maintained when appropriate.
The Rand SBIC interest accrual is also regulated by the SBA’s “Accounting Standards and Financial Reporting
Requirements for Small Business Investment Companies.” Under these rules interest income cannot be recognized
if collection is doubtful, and a 100% reserve must be established. The collection of interest is presumed to be in
doubt when there is substantial doubt about a portfolio company’s ability to continue as a going concern or the loan
is in default more than 120 days. Management also utilizes other qualitative and quantitative measures to determine
the value of a portfolio investment and the collectability of any accrued interest.
Original Issue Discount – Investments may create “original issue discount” or OID income. This situation
arises when the Corporation purchases a warrant and a note from a portfolio company simultaneously, which
requires an allocation of a portion of the purchase price to the warrant and reduces the note or debt instrument by an
equal amount in the form of a note discount or OID. The note is then reported net of the OID and the OID is
amortized into interest income over the life of the loan. The Corporation recorded one OID during 2006 in the
amount of approximately $68,000 and recognized $0, $62,333 and $5,557 in OID income for the years ended
December 31, 2008, 2007 and 2006, respectively.
Deferred Debenture Costs – SBA debenture origination and commitment costs, which are included in other
assets, will be amortized ratably over the terms of the SBA debentures. Amortization expense during the years
ended December 31, 2008, 2007 and 2006 was $46,982, $27,982 and $26,591, respectively. Annual amortization
expense for the next five years is estimated to average $28,000 per year.
Deferred Revenue – The Corporation charges application and closing fees in connection with its investments.
These fees are deferred and amortized into income over the life of the debt or equity investment. Deferred fees
amortized into income for the years ended December 31, 2008, 2007 and 2006 amounted to $33,275, $29,366, and
$50,277, respectively. Deferred revenue amortization income is estimated to be $6,700 in 2009 and $2,700 in 2010.
Net Assets Per Share – Net assets per share are based on the number of shares of common stock outstanding.
There are no common stock equivalents.
Supplemental Cash Flow Information – Income taxes paid (refunded) during the years ended December 31,
2008, 2007 and 2006 amounted to $1,069,032, $845,429 and ($11,097), respectively. Interest paid during the years
ended December 31, 2008, 2007 and 2006 was $473,575, $468,184 and $392,080, respectively. During 2008, 2007
and 2006, the Corporation converted $67,235, $50,000 and $34,356, respectively, of interest receivable into equity
investments. During the year ended December 31, 2007 the Corporation recorded two escrow receivables totaling
$209,469 and $711,249, respectively, in connection with the sale of investments.
Concentration of Credit and Market Risk – The Corporation’s financial instruments potentially subject it to
concentrations of credit. Cash is invested with banks in amounts which, at times, exceed insurable limits.
Management does not anticipate non-performance by the banks.
As of December 31, 2008, 78% of the Corporation’s total investment value was held in five notes and equity
securities. As of December 31, 2007, 74% of the Corporation’s total investment value was held in five notes and
equity securities.
39
RAND CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Income Taxes – The Corporation adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement 109” (“FIN 48”) on January 1, 2007. FIN 48 clarifies the accounting and
disclosure for uncertain tax positions by requiring that a tax position meet a “more likely than not threshold” for the
benefit of the tax position to be recognized in the financial statements. A tax position that fails to meet the more
likely than not recognition threshold will result in either a reduction of a current or deferred tax asset or receivable,
or the recording of a current or deferred tax liability. FIN 48 also provides guidance on measurement, recognition of
tax benefits, classification, interim period accounting disclosure, and transition requirements in accounting for
uncertain tax positions.
Accounting Estimates – The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Recent Accounting Standards – On January 1, 2008 the Corporation adopted Statement of Financial
Accounting Standards No. 157, “Fair Value Measurements,” (SFAS 157) which defines fair value, establishes
guidelines for measuring fair value in accordance with GAAP and expands disclosures regarding fair value
measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. SFAS 157 provides a framework for measuring fair value and establishes a three tiered
hierarchy for fair value measurement based upon the inputs to the valuation of an asset or liability at the
measurement date. SFAS 157 provides a consistent definition of fair value and focuses on exit prices and prioritizes
the use of market-based inputs.
Note 2. – Other Assets
At December 31, 2008 and 2007 other assets was comprised of the following:
2008 2007
Deferred debenture costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $172,446 $ 219,428
Escrow receivable from Allworx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,048 140,048
Escrow receivable from USTec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,421 69,421
Property, plant and equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,604 8,628
Operating receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,876 278
Reserve for uncollectible USTec escrow . . . . . . . . . . . . . . . . . . . . . . . . . . (69,421) —
Escrow receivable from Innov-X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 711,249
Dividend receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,013
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $330,974 $1,150,065
In 2007 the Corporation sold its equity in Allworx. A portion of the proceeds were held in escrow and are
expected to be released in 2009.
In 2007 the Corporation sold a portion of its shares in UStec. A portion of the proceeds were held in escrow and
were scheduled to be released in 2008. There are ongoing discussions with UStec about the collection of this escrow
receivable and a reserve has been established against the receivable.
In 2006 the Corporation sold a portion of its shares in Innov-X. As part of the sale a percentage of the proceeds
were held in an escrow account, which the Corporation recorded as a receivable. The amount was received during
2008.
40
RAND CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 3. – Income Taxes
Deferred tax assets and liabilities are recorded for temporary differences between the financial statement and
tax bases of assets and liabilities using the tax rate expected to be in effect when the taxes are actually paid or
recovered.
The tax effect of the major temporary differences and carryforwards that give rise to the Corporation’s net
deferred tax liabilities at December 31, 2008 and 2007 are approximately as follows:
2008 2007
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,349,000 $ 574,000
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,007,000) (4,678,000)
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,000 149,000
Deferred tax liability, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,490,000) $(3,955,000)
The Company assesses annually the recoverability of its deferred tax asset to determine if a valuation
allowance is necessary. In performing this assessment, it considers estimated future taxable income and ongoing tax
planning strategies. No allowance was deemed necessary for 2008 and 2007.
The components of income tax expense (benefit) reported in the statements of operations are as follows for the
years ended December 31:
2008 2007 2006
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 677,635 $ 837,752 $ 398,154
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,345) 63,759 3,647
672,290 901,511 401,801
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (427,692) 472,266 3,956,000
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,308) 12,054 698,000
(444,000) 484,320 4,654,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 228,290 $1,385,831 $5,055,801
A reconciliation of the expense (benefit) for income taxes at the federal statutory rate to the expense reported is
as follows:
2008 2007 2006
Net investment gain and realized gain before income tax
expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $648,757 $4,104,996 $13,222,272
Expected tax expense at statutory rate . . . . . . . . . . . . . . . . $241,577 $1,395,699 $ 4,495,572
State – net of federal effect . . . . . . . . . . . . . . . . . ....... 15,016 87,430 793,336
Pass-through benefit from Portfolio Investment . . ....... (42,500) — —
Tax credits and other. . . . . . . . . . . . . . . . . . . . . . ....... 14,197 (97,298) (233,107)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $228,290 $1,385,831 $ 5,055,801
At December 31, 2008 and 2007 the Corporation no longer had any federal net operating loss carryforwards,
state net operating loss carryforwards or capital loss carryforwards. For state tax purposes the Corporation had a
41
RAND CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Qualified Emerging Technology Company (QETC) tax credit carryforward of $255,381 and $225,305 at
December 31, 2008 and 2007. The QETC credit carryforward does not have an expiration date.
The Corporation adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, on January 1, 2007. The cumulative effect of adopting FIN 48 was to increase current taxes payable by
$21,200 and reduce deferred tax liabilities by $316,253. As of January 1, 2007 the balance of accumulated net
investment loss was decreased by $11,016, and the balance in net unrealized appreciation on investments was
increased by $327,269. Upon adoption, the liability for income taxes associated with uncertain tax positions at
January 1, 2007 was $21,200 which, if recognized, would impact the Corporation’s effective tax rate. The
Corporation does not expect that the amounts of unrecognized tax positions will change significantly within the
next 12 months.
For the year ended December 31, 2008, the Corporation recorded an additional $21,000 in deferred tax
liabilities. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follow:
Balance at January 1, 2007 – adoption of FIN 48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(295,053)
Increases for positions taken in current year . . . . . . . . . . . . . ................... 316,253
Increases for positions taken in prior year . . . . . . . . . . . . . . ................... —
Decreases in positions taken in prior year . . . . . . . . . . . . . . . ................... (12,700)
Decreases for settlements with taxing authorities . . . . . . . . . ................... —
Decrease for lapses in the applicable statute of limitations . . ................... —
Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,500
Increases for positions taken in current year . . . . . . . . . . . . . ................... —
Increases for positions taken in prior year . . . . . . . . . . . . . . ................... 21,000
Decreases in positions taken in prior year . . . . . . . . . . . . . . . ................... —
Decreases for settlements with taxing authorities . . . . . . . . . ................... —
Decrease for lapses in the applicable statute of limitations . . ................... —
—
Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,500
It is the Corporation’s policy to include interest and penalties related to income tax liabilities in income tax
expense on the Statement of Operations. No amounts were recognized in 2007. During 2008, the Corporation
recognized $4,800 of interest and penalties related to unrecognized tax benefits.
The Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for
the years ending December 31, 2005 through 2007. The Corporation’s state income tax returns are open to audit
under the statute of limitations for the years ended December 31, 2005 through 2007. The New York State
Department of Revenue recently informed the Corporation that they are auditing the Corporation’s New York
corporate income tax returns for the years ended December 31, 2005 through 2007. All anticipated adjustments
have been recorded as a FIN 48 liability at December 31, 2008.
Note 4. – SBA Debenture Obligations
Rand SBIC paid a non-refundable commitment fee of $100,000 to the SBA to reserve $10,000,000 of its
approved SBA Guaranteed Debenture leverage in July 2003 and August 2004. The fee represents 1% of the face
amount of the leverage reserved under the commitment and was a partial prepayment of the SBA’s nonrefundable
3% leverage draw fees. As of December 31, 2008 and 2007, Rand SBIC had debentures payable to and guaranteed
by the SBA totaling $8,100,000 against this commitment. The remaining leverage commitment of $1,900,000
expired on September 30, 2008. The remaining unamortized prepaid leverage fee of $19,000 was expensed during
42
RAND CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2008. The debenture terms require semiannual payments of interest at annual interest rates ranging from 4.12% to
5.995%, plus an annual charge that ranged from .855% to .887% during the year ended December 31, 2008. The
debentures outstanding at December 31, 2008 mature from 2014 to 2016.
Note 5. – Stockholders’ Equity (Net Assets)
At December 31, 2008 and 2007, there were 500,000 shares of $10.00 par value preferred stock authorized and
unissued.
The Board of Directors has authorized the repurchase of up to 5% of the Corporation’s outstanding stock on the
open market through October 23, 2009.
Summary of change in equity accounts:
Accumulated Undistributed
Net Net Realized Net unrealized
Investment Gain (Loss) on Appreciation
Loss Investments on Investments
Balance, December 31, 2006. . . . . . . . . . . . . . . . . . . $(6,253,128) $ 9,763,366 $5,769,615
Net increase (decrease) in net assets from operations. . 2,312,719 (1,967,077) 2,689,776
Balance, December 31, 2007. . . . . . . . . . . . . . . . . . . $(3,940,409) $ 7,796,289 $8,459,391
Net increase (decrease) in net assets from operations. . 196,501 (60,812) 273,454
Balance, December 31, 2008. . . . . . . . . . . . . . . . . . . $(3,743,908) $ 7,735,477 $8,732,845
Note 6. – Stock Option Plans
In July 2001, the stockholders of the Corporation authorized the establishment of an Employee Stock Option
Plan (the “Plan”). The Plan provides for the award of options to purchase up to 200,000 common shares to eligible
employees. In 2002, the Corporation placed the Plan on inactive status as it developed a new profit sharing plan for
the Corporation’s employees in connection with the establishment of its SBIC subsidiary. As of December 31, 2008,
2007 and 2006, no stock options had been awarded under the Plan. Because Section 57(n) of the of the Investment
Company Act of 1940 (the “1940 Act”) prohibits maintenance of a profit sharing plan for the officers and
employees of a BDC where any option, warrant or right is outstanding under an executive compensation plan, no
options will be granted under the Plan while any profit sharing plan is in effect with respect to the Corporation (See
Note 7).
Note 7. – Employee Benefit Plans
The Corporation has a defined contribution 401(k) Plan. The Plan provides a base contribution of 1% for
eligible employees and also provides up to 5% matching contributions. Plan expense was $27,158, $29,882 and
$22,073 during the years ended December 31, 2008, 2007 and 2006, respectively.
In 2002, the Corporation established a Profit Sharing Plan for its executive officers in accordance with
Section 57(n) of the 1940 Act. Under the Profit Sharing Plan, Rand will pay its executive officers aggregate profit
sharing payments equal to 12% of the net realized capital gains of its SBIC subsidiary, net of all realized capital
losses and unrealized depreciation of the subsidiary, for the fiscal year, computed in accordance with the Plan and
the Corporation’s interpretation of such policies. Any profit sharing paid can not exceed 20% of the Corporation’s
net income, as defined. The profit sharing payments will be split equally between Rand’s two executive officers,
who are fully vested in the Plan. There were no contributions to, or payments made under, the Plan during the years
ended 2008, 2007 and 2006.
43
RAND CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 8. – Commitments and Contingencies
The Corporation has an agreement which provides health benefits for the spouse of a former officer of the
Corporation. Remaining payments projected to be paid to the surviving spouse have been fully accrued. Total
accrued health benefits under this agreement at December 31, 2008 and 2007 were $51,122 and $59,000,
respectively.
The Corporation has a lease for office space which expires in December 2010. Rent expense under this
operating lease for the years ended December 31, 2008, 2007 and 2006 was $16,698, $16,320 and $15,981 per year.
The future operating lease obligation for the next 2 years is approximately $17,000 per year.
Note 9. – Subsequent Events
Subsequent to the year ended December 31, 2008, the Corporation made two follow on investments totaling
$62,637.
Note 10. – Quarterly Operations and Earnings Data – Unaudited
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
2008
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 472,327 $ 424,043 $482,268 $378,365
Net increase (decrease) in net assets from operations . . . . 855,573 (337,383) (17,231) (91,816)
Basic and diluted net increase (decrease) in net assets
from operations per share . . . . . . . . . . . . . . . . . . . . . . . 0.15 (0.06) (0.00) (0.02)
2007
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,081,127 $ 365,603 $375,728 $480,412
Net increase (decrease) in net assets from operations . . . . 2,780,856 (351,099) 157,940 131,468
Basic and diluted net increase (decrease) in net assets
from operations per share . . . . . . . . . . . . . . . . . . . . . . . 0.49 (0.06) 0.03 0.02
Note 11. – Allowance for Doubtful Accounts
The Corporation maintains an allowance for doubtful accounts for estimated losses from interest payments due
from portfolio investments. The allowance for doubtful accounts is based on a review of the overall condition of the
accounts receivable balances and a review of past due amounts. Changes in the allowance for doubtful accounts
consist of the following:
2008 2007 2006
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . $(122,000) $(122,000) $(236,870)
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (817) – –
Recoveries/Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 114,870
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(122,817) $(122,000) $(122,000)
44
RAND CAPITAL CORPORATION AND SUBSIDIARIES
SCHEDULE OF CONSOLIDATED CHANGES IN INVESTMENTS AT
COST AND REALIZED GAIN
For the Year Ended December 31, 2008
Cost
Increase Realized
(Decrease) Gain
New and additions to previous investments
GridApp Systems, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 666,667
Niagara Dispensing Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 416,773
SOMS Technologies, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 250,000
Associates Interactive, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 200,000
Mezmeriz, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 100,000
APF Group, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 40,832
Rocket Broadband Networks, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ 35,000
1,709,272
Investments sold/liquidated
New Monarch Machine Tool, Inc. repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (520,147)
Gemcor LLC repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62,253)
Contract Staffing repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (131,065)
(713,465)
Net change in investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 995,807 —
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Rand Capital Corporation and Subsidiaries
We have audited the accompanying consolidated statements of financial position of Rand Capital Corporation
and Subsidiaries (the “Corporation”) as of December 31, 2008 and 2007, including the consolidated schedule of
portfolio investments as of December 31, 2008, and the related consolidated statements of operations, cash flows
and changes in net assets for each of the three years in the period ended December 31, 2008, and the selected per
share data and ratios for each of the five years in the period then ended. These consolidated financial statements and
the selected per share data and ratios are the responsibility of the Corporation’s management. Our responsibility is
to express an opinion on these consolidated financial statements and selected per share data and ratios based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and selected per share data and ratios are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included examination or confirmation of securities owned as of December 31, 2008 and
2007. An audit also includes assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements and selected per share data and ratios referred to above
present fairly, in all material respects, the financial position of the Corporation as of December 31, 2008 and 2007,
the results of their operations, their cash flows and the changes in their net assets for each of the three years in the
period ended December 31, 2008, and the selected per share data and ratios for each of the five years in the period
then ended, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1, the investment securities included in the consolidated financial statements valued at
$28,126,282 (139% of net assets) and $26,528,490 (134% of net assets) as of December 31, 2008 and 2007,
respectively, include securities valued at $28,014,282 and $26,265,790, respectively, whose fair values have been
estimated by the Board of Directors in the absence of readily ascertainable market value. We have reviewed the
procedures used by the Directors in preparing the valuations of investment securities and have inspected the
underlying documentation, and in the circumstances we believe the procedures are reasonable and the documen-
tation appropriate. Those estimated values may differ from the values that would have been used had a ready market
for the investments existed.
Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The supplementary schedule of consolidated changes in investments at cost and realized loss for
the year ended December 31, 2008 is presented for purposes of additional analysis and is not a required part of the
basic consolidated financial statements. The supplemental schedule is the responsibility of Corporation’s man-
agement. Such schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated
financial statements taken as a whole.
/s/ Freed Maxick & Battaglia, CPAs, PC
Buffalo, New York
March 25, 2009
46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A(T). Controls and Procedures
There have been no significant changes in our internal control or in other factors that could significantly affect
those controls subsequent to our evaluation, including any corrective actions with regard to significant deficiencies
and material weaknesses.
Management report on Internal Control Over Financial Reporting The management of the Corporation is
responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s
internal control system is a process designed to provide reasonable assurance to the Corporation’s management and
board of directors regarding the preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide
reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles and that receipts and expenditures are being made
only in accordance with authorizations of management and the directors of the Corporation; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Corporation’s assets that could have a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of
December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on our
assessment management believes that, as of December 31, 2008, the Corporation’s internal control over financial
reporting is effective based on those criteria.
This annual report does not include an attestation report of the Corporation’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Com-
mission that permit the company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting. There have been no significant changes in our
internal control or in other factors that could significantly affect those controls subsequent to our evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 9B. Other Information
None
Part III
Item 10. Directors, Executive Officers, and Corporate Governance
Information in response to this Item is incorporated herein by reference to the information under the headings
‘‘PROPOSAL 1 – ELECTION OF DIRECTORS”, “COMMITTEES AND MEETING DATA,” and “Section 16(a)
Beneficial Ownership Compliance” provided in the Corporation’s definitive Proxy Statement for its Annual
Meeting of Shareholders to be held April 30, 2009, to be filed under Regulation 14A (the “2009 Proxy Statement”).
47
The Corporation has adopted a written code of ethics and officer Code of Ethics that applies to our principal
executive officer, principal financial officer, and controller, and a Business Ethics Policy applicable to the
Corporation’s directors, officers and employees. The Corporation’s Code of Ethics and Business Ethics Policy
are available, free of charge, in the Governance section of the Corporation’s website located at
www.randcapital.com.
Item 11. Executive Compensation
Information in response to this Item is incorporated herein by reference to the information provided in the
Corporation’s 2009 Proxy Statement under the headings “COMPENSATION DISCUSSION AND ANALYSIS”
and “DIRECTOR COMPENSATION.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information in response to this Item is incorporated herein by reference to the information provided in the
Corporation’s 2009 Proxy Statement under the heading “BENEFICIAL OWNERSHIP OF SHARES.”
Item 13. Certain Relationships and Related Transactions and Director Independence
Information in response to this Item is incorporated herein by reference to the information in the Corporation’s
2009 Proxy Statement under the heading “DIRECTOR INDEPENDENCE.”
Item 14. Principal Accountant Fees and Services
Information concerning the Corporation’s independent auditors, the audit committee’s pre-approval policy for
audit services and our principal accountant fees and services is contained in the Corporation’s 2009 Proxy
Statement under the heading “INDEPENDENT ACCOUNTANT FEES”.
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report and included in Item 8:
(1) CONSOLIDATED FINANCIAL STATEMENTS
Statements of Financial Position as of December 31, 2008 and 2007
Statements of Operations for the three years in the period ended December 31, 2008
Statements of Changes in Net Assets for the three years in the period ended December 31, 2008
Statements of Cash Flows for the three years in the period ended December 31, 2008
Schedule of Portfolio Investments as of December 31, 2008
Schedules of Selected Per Share Data and Ratios for the five years in the period ended December 31,
2008
Notes to the Consolidated Financial Statements
Supplemental Schedule of Consolidated Changes in Investments at Cost and Realized Gain for the
year ended December 31, 2008
Report of Independent Registered Public Accounting Firm
(2) FINANCIAL STATEMENT SCHEDULES
The required financial statement Schedule II – Valuation and Qualifying Accounts has been omitted
because the information required is included in the note 10 to the consolidated financial statements.
48
(b) The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in
accordance with Rule 12b-32 under the Securities Exchange Act of 1934.
(3)(i) Certificate of Incorporation of the Corporation, incorporated by reference to Exhibit (a)(1) of
Form N-2 filed with the Securities Exchange Commission on April 22, 1997.
(3)(ii) By-laws of the Corporation incorporated by reference to Exhibit (b) of Form N-2 filed with the
Securities Exchange Commission on April 22, 1997.
(4) Specimen certificate of common stock certificate, incorporated by reference to Exhibit (b) of
Form N-2 filed with the Securities Exchange Commission on April 22, 1997.
(10.1) Employee Stock Option Plan – incorporated by reference Appendix B to the Corporation’s
definitive Proxy Statement filed on June 1, 2002.*
(10.3) Agreement of Limited Partnership for Rand Capital SBIC, L.P. – incorporated by reference to
Exhibit 10.3 to the Corporation’s Form 10-K filed for the year ended December 31, 2001.
(10.4) Certificate of Formation of Rand Capital SBIC, L.P. – incorporated by reference to Exhibit 10.3
to the Corporation’s Form 10-K filed for the year ended December 31, 2001.
(10.5) Limited Liability Corporation Agreement of Rand Capital Management, LLC – incorporated by
reference to Exhibit 10.3 to the Corporation’s Form 10-K filed for the year ended December 31,
2001.
(10.6) Certificate of Formation of Rand Capital Management, LLC – incorporated by reference to
Exhibit 10.3 to the Corporation’s Form 10-K filed for the year ended December 31, 2001.
(10.7) Certificate of Incorporation of Rand Merger Corporation as filed by the NY Department of State
on 12/18/08 – incorporated by reference to Exhibit 1(a) to Registration Statement
No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on 2/6/09.
(10.8) By-laws of Rand Capital SBIC, Inc. – incorporated by reference to Exhibit 2 to Registration
Statement No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on 2/6/09.
(10.9) Certificate of Merger of Rand Capital SBIC, L.P. and Rand Capital Management, LLC into Rand
Merger Corporation, as filed by the NY Department of State on 12/18/08 – incorporated by
reference to Exhibit 1(b) to Registration Statement No. 811-22276 on Form N-5 of Rand Capital
SBIC, Inc. filed with the SEC on 2/6/09.
(10.10) Rand Capital Corporation Amended and Restated Profit Sharing Plan applicable to Rand
Capital SBIC, Inc. – incorporated by reference to Exhibit 7 to Registration Statement
No. 811-22276 on Form N-5 of Rand Capital SBIC, Inc. filed with the SEC on 2/6/09.*
(31.1) Certification of Principal Executive Officer Pursuant to Rules 13a-14(a)/15d-14(a) under the
Securities Exchange Act of 1934, as amended-filed herewith
(31.2) Certification of Principal Financial Officer Pursuant to Rules 13a-14(a)/15d-14(a) under the
Securities Exchange Act of 1934, as amended – filed herewith
(32.1) Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Rand Capital
Corporation – furnished herewith
(32.2) Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Rand Capital SBIC,
Inc. – furnished herewith
* Management contract or compensatory plan.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, the registrant has
duly caused this Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: March 25, 2009 RAND CAPITAL CORPORATION
By: /s/ ALLEN F. GRUM
Allen F. Grum, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been
signed below by the following persons on behalf of the Corporation in the capacities and on the date
indicated.
Signature Title
(i) Principal Executive Officer:
/s/ ALLEN F. GRUM President March 25, 2009
Allen F. Grum
(ii) Principal Accounting & Financial Officer:
/s/ DANIEL P. PENBERTHY Treasurer March 25, 2009
Daniel P. Penberthy
(iii) Directors:
/s/ ALLEN F. GRUM Director March 25, 2009
Allen F. Grum
/s/ ERLAND E. KAILBOURNE Director March 25, 2009
Erland E. Kailbourne
/s/ ROSS B. KENZIE Director March 25, 2009
Ross B. Kenzie
/s/ WILLIS S. MCLEESE Director March 25, 2009
Willis S. McLeese
/s/ REGINALD B. NEWMAN II Director March 25, 2009
Reginald B. Newman II
/s/ JAYNE K. RAND Director March 25, 2009
Jayne K. Rand
/s/ ROBERT M. ZAK Director March 25, 2009
Robert M. Zak
50
EXHIBIT 31.1
CERTIFICATION
of
Principal Executive Officer Pursuant to Rules 13a-14(a)/15d-14(a) under
the Securities Exchange Act of 1934, as amended
I, Allen F. Grum, certify that:
1. I have reviewed this annual report on Form 10-K of Rand Capital Corporation and subsidiaries;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Dated: March 25, 2009
Allen F. Grum, President
(Principal Executive Officer of Rand Capital
Corporation and Principal Executive Officer of Rand
Capital SBIC, Inc.)
51
EXHIBIT 31.2
CERTIFICATION
of
Principal Financial Officer Pursuant to Rules 13a-14(a)/15d-14(a) under
the Securities Exchange Act of 1934, as amended
I, Daniel P. Penberthy, certify that:
1. I have reviewed this annual report on Form 10-K of Rand Capital Corporation and subsidiaries;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual
report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Dated: March 25, 2009
Daniel P. Penberthy, Treasurer
(Principal Financial Officer of Rand Capital
Corporation and Principal Financial Officer of Rand
Capital SBIC, Inc.)
52
EXHIBIT 32.1
CERTIFICATION
Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 906
Of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
each of the undersigned officers of Rand Capital Corporation (the “Company”), does hereby certify, to such
officer’s knowledge, that:
The Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the Form 10-K) of the
Company fully complies with the requirement of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 25, 2009
Allen F. Grum, President
(Chief Executive Officer)
Dated: March 25, 2009
Daniel P. Penberthy, Treasurer
(Chief Financial Officer)
53
EXHIBIT 32.2
CERTIFICATION
Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 906
Of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
each of the undersigned officers of Rand Capital SBIC, Inc. (the “Company”), does hereby certify, to such officer’s
knowledge, that:
The Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the Form 10-K) of the
Company fully complies with the requirement of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and
results of operations of the Company
Dated: March 25, 2009
Allen F. Grum, President of
Rand Capital Corporation
(chief executive officer
of Rand Capital SBIC, Inc.)
Dated: March 25, 2009
Daniel P. Penberthy, Treasurer of
Rand Capital Corporation
(chief financial officer
of Rand Capital SBIC, Inc.)
54
TRANSFER AGENT
For information on ownership, lost/missing shares or other information regarding Rand stock certificates,
please contact our transfer agent. If you need additional assistance, please contact Rand Capital directly.
Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor
New York, NY 10004
Phone: 212-509-4000
www.continentalstock.com
SHAREHOLDERS
The Corporation had an estimated total of 820 shareholders, which included approximately 97 record holders
of its common stock, and an estimated 723 shareholders with shares held under beneficial ownership in nominee
name or within clearinghouse positions of brokerage firms or banks.
STOCK LISTING INFORMATION
The common stock of Rand Capital is traded on The NASDAQ Capital Market tier of the NASDAQ Stock
Market under the symbol: RAND. The closing stock price at December 31, 2008 was $3.50.
NOTICE OF ANNUAL MEETING
The Annual Meeting of Shareholders of Rand Capital Corporation will be held on Thursday, April 30, 2009 at
10:30 a.m. at the Rand Building, Room 410, 14 Lafayette Square, Buffalo, New York. All shareholders are
encouraged to attend.
DIRECTORS
Reginald B. Newman II . . . . . . . . . . . . . . . . . . . . . . Chairman, Prior Aviation Services, Inc.
Buffalo, NY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chairman of the Board, Rand Capital Corporation
Allen F. Grum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . President, Rand Capital Corporation
Buffalo, NY
Erland E. Kailbourne . . . . . . . . . . . . . . . . . . . . . . . . Chairman, Financial Institutions, Inc.
Buffalo, NY
Ross B. Kenzie. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retired
Buffalo, NY
Willis S. McLeese . . . . . . . . . . . . . . . . . . . . . . . . . . Chairman, Colmac Holdings Ltd.
Toronto, Canada
Jayne K. Rand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, M&T Bank
Buffalo, NY
Robert M. Zak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . President & CEO, Merchants Insurance Group
Buffalo, NY
55
OFFICERS
Allen F. Grum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . President
Daniel P. Penberthy . . . . . . . . . . . . . . . . . . . . . . . . . Treasurer/Secretary
CORPORATE COUNSEL INDEPENDENT AUDITORS
Hodgson Russ LLP Freed Maxick & Battaglia, CPA’s, PC
The Guaranty Building 800 Liberty Building
140 Pearl Street, Suite 100 Buffalo, NY 14202
Buffalo, NY 14202 www.freedmaxick.com
www.hodgsonruss.com
RAND CAPITAL CORPORATION
2200 Rand Building Email: pgrum@randcapital.com
Buffalo, NY 14203 dpenberthy@randcapital.com
Tel: 716-853-0802
Fax: 716-854-8480 Shareholder
www.randcapital.com Information shareholders@randcapital.com
56
